Are You One of the 270,000 Homeowners Who Can Benefit From a Mortgage Refinance?

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You might have a chance to benefit from swapping your current home loan for a new one. 

There’s a reason so many homeowners rushed to refinance their mortgages back in 2020 and 2021. At that point, mortgage rates were extremely competitive, and many homeowners were in a solid position to reap savings on their mortgages by refinancing them.

But things are looking very different as of early 2023. A year ago, a good 7 million borrowers stood to benefit from a refinance, according to data firm Black Knight. But at this point, that number has been whittled down to just 270,000 — even though mortgage rates are a bit lower today than they were in the fall of 2022.

Now it may be the case that most homeowners won’t benefit much from a refinance today. But here’s how to know if you’re an exception to that rule.

When the numbers make sense

Generally speaking, for a refinance to make sense, you need to be looking at an interest rate that’s around 1% lower than what you’re currently paying on your mortgage or more. And the reason for that boils down to the cost of a refinance.

One thing homeowners tend to forget when they look to refinance is that swapping an existing mortgage for a new one comes at a price. Refinance lenders commonly charge closing costs, the same way those fees apply to a regular mortgage. And closing costs can easily amount to 2% to 5% of the loan you’re refinancing.

So, let’s say you owe $300,000 on your mortgage. In the course of a refinance, you might end up having to pay fees ranging from $6,000 to $15,000, depending on the lender you decide to work with. And so you’ll need to eke out enough savings on your mortgage rate to make a refinance worthwhile.

Another reason to refinance today

If you can shave 1% or more off of your current mortgage’s interest rate, then that alone is a good reason to move forward with a refinance, even if today’s borrowing rates are far from the lowest they’ve been in years. But even if you can’t lower your mortgage’s interest rate by 1% or more, there might still be a case for refinancing — and it’s wanting to take cash out of your home.

These days, homeowners are sitting on a decent amount of equity due to the fact that home values are still up on a national level. So if you’re looking to tap that equity by taking cash out of your home, then refinancing could actually end up being your most cost-effective way to borrow.

All told, today’s mortgage rates aren’t low enough for refinancing to appeal to, or be appropriate for, the majority of homeowners. But you might be an exception, so it could be worth it to crunch the numbers and see if a refinance makes sense for you.

If you do decide to refinance, make sure to shop around with different lenders. That way, you can compare rates and closing costs to see which offer is worth moving forward with.

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