This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.
Mortgage rates have been stuck in the 6% range. Read on to see why a refinance could still make sense.
Image source: Getty Images
Mortgage rates have been stuck in the 6% range since the start of 2023 for 30-year loans. And as of May 4, the average 30-year mortgage rate was 6.39%, according to Freddie Mac.
Because mortgages have gotten expensive, you’ll generally hear that now’s not a great time to refinance. And for many homeowners, that advice is spot-on. But here are a couple of reasons why you may want to refinance your mortgage, even with rates being above 6%.
1. You’re paying way more than 6% now
Today’s borrowing rates for mortgages seem high because in 2020 and 2021, borrowers got used to record-low rates in the 3% range or below. But historically speaking, borrowing for a home in the 6% range isn’t so bad.
What’s more, if you signed your mortgage a number of years back and your credit score wasn’t so great at the time, you may have gotten stuck with a mortgage in the mid-7% range, or even 8% or more. So in that case, refinancing to a new mortgage with a rate of, say, 6.39% doesn’t seem so terrible.
2. You want to take cash out of your home
The Federal Reserve has been raising interest rates, so these days, it’s expensive to borrow money no matter how you go about it. However, you might snag a lower interest rate on a mortgage refinance than on another loan, like a home equity or personal loan. And so if you need to borrow money and want to take cash out of your home via a cash-out refinance, then it could pay to do so even if it means locking in a new home loan in the mid-6% range.
With a cash-out refinance, you don’t just swap your existing mortgage for a new one. Instead, you borrow more than your remaining mortgage balance and get the difference in cash. You can then use that cash any way you see fit.
Right now, you might pay 6.39% on a cash-out refinance for a 30-year mortgage. By contrast, a lot of personal loan lenders are charging between 7% and 9% these days, which is a higher rate than what you’d get by refinancing your mortgage.
Should you refinance this year?
Let’s be clear. For many homeowners, it absolutely does not and will not make sense to refinance a mortgage in 2023 (assuming rates stay where they are today for the rest of the year). This especially holds true given that so many homeowners refinanced their mortgages in 2020 and 2021, and are now sitting on super low rates.
But there tend to be exceptions to every rule. And if one of the above circumstances applies to you, then a mortgage refinance at over 6% interest could still be a savvy move.
That said, given where mortgage rates are today, it’s important to go into the refinance process with a great credit score. Doing so increases your chances of getting the most competitive interest rate a given lender has to offer — even if the baseline is pretty high.
Our picks for the best credit cards
Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.
