Almost 25% of Homeowners Refinanced in 2021. Is It Too Late for You to Do the Same?

Does it still pay to swap an old mortgage for a new one?

There's a reason so many homeowners clamored to refinance their mortgages in 2021. Mortgage rates spent the entire year at attractive levels, which meant borrowers stood to reap a fair amount of savings by swapping their existing home loans for new ones. Not surprisingly, almost 25% of homeowners refinanced in 2021, according to new Federal Reserve data.

But right now, mortgage rates are higher than they've been in many years. And that extends to refinance rates. As such, it's easy to assume that it's too late to look at refinancing. But it could pay to move forward with a new mortgage if these things apply to you.

1. Your credit score has improved a lot

The mortgage rate you're eligible for is based on different factors, and one big factor is your credit score. Simply put, the higher your credit score, the less of a borrowing risk you present as. And so mortgage lenders are likely to reward a higher credit score with a lower mortgage rate, since they're taking on less risk.

If your credit score wasn't so great at the time you applied for your mortgage, but it's since improved, then it could pay to see if you're eligible for a lower rate on your home loan now, even with rates being up across the board. In fact, a good bet is to see what your current rate looks like and compare it to what refinance rates are averaging to see what makes sense. 

2. You want to take cash out of your home

While mortgage rates are up right now, you're likely to snag a lower interest rate on a mortgage refinance than on a personal loan or home equity loan or line of credit (HELOC). And so if you have a need for money and you want to take cash out of your home, a cash-out refinance could be a smart move.

Right now, home values are up on a national scale. That means property owners are sitting on record levels of equity. If you want to tap yours, it could pay to do a cash-out refinance, which will allow you to borrow more than your remaining home loan balance.

Imagine you owe $150,000 on your mortgage, but you have a home that's now worth $350,000. If you need a $50,000 loan to cover renovations, repairs, or something having nothing at all to do with your home, you could do a cash-out refinance to scrounge up that money. In that case, you'd get a $200,000 loan. The first $150,000 would be used to pay off your current mortgage and you'd get a check for the rest.

It pays to weigh your options

Refinancing won't make sense for a lot of borrowers today based on where rates are sitting. But if you're looking at a much-improved credit score or a need for cash, then it pays to crunch some numbers and see if a refinance is worth pursuing. You may find that it's an efficient way to borrow money, or that you can reap savings on your housing payments by swapping your current home loan for a new one.