Should I Refinance my Home in 2022?

Published September 12, 2022

Should I refinance my home

Is 2022 a good time to refinance? While surging home prices have been a boon for sellers, homeowners who decided to stay put can also reap the benefits via refinancing or home equity loans.

Mortgage rates are no longer at record lows, but they’re still relatively low by historical standards. Data over the last 50 years gathered by Freddie Mac put the average interest rate just under eight percent.

Home values are also at an all-time high, which means home equity has increased for many homeowners. This is great news if you want to draw money from your home.

Why are mortgage rates rising?
So far this year, mortgage rates have been trending higher. Supply chain shortages, high consumer demand for goods, and labor shortages have pushed inflation to the highest level in decades. This has led the Federal Reserve to make changes that increase costs for mortgage lenders, and those costs are passed on to borrowers. Given that we are still below the average mortgage rate for the last 50 years, we can assume that rates will continue to rise.

What’s the difference between refinancing and a home equity loan?
Refinancing pays off your old mortgage in exchange for a new mortgage, ideally at a lower interest rate.
A home equity loan gives you cash in exchange for the equity you've built up in your property, as a separate loan with separate payment dates.

Should I refinance my home

Reasons to Consider Refinancing in 2022
We know mortgage rates are rising, but it’s important to note that credit card rates and traditional loan rates are also rising. So, for example, if you’re paying 15 percent interest on credit card debt and want to pay it down, even a 5% mortgage rate is a better deal. 

Consolidating debt is a good reason to consider a refinance. Many folks think that their rate is low and don’t want to increase it, but you must consider the rates on all your debt, including your car, motor home, home equity lines of credit and credit cards. When you add all these rates, your weighted average interest rate could be significantly higher than the current refinance rate. We can help you make this distinction and show you the potential monthly savings.

When you refinance, you can pull out cash to finish home repairs, remodels or make additions to your home — increasing the value of your home. You could also pull cash to use toward a down payment on another home, or buy a secondary home outright, if you have enough equity. This second property could be used as a vacation home or a rental property.

Refinancing also allows for a longer loan term. You can borrow up to 30 years on a mortgage, but commonly only 20 years on a home equity loan. This means that refinancing could offer you lower monthly payments.

At the end of the day, refinancing will end with one monthly payment to one lender. Home equity loans are a separate loan, and therefore two payments are made.

Good candidates for refinancing could be:

  • Is your current loan an FHA, or USDA mortgage? You may be able to lower your interest rate and monthly payment. Eligibility requirements are relaxed, and you likely won’t need a new home appraisal.

  • Do you want to pay off your home early? Consider refinancing to a shorter-term loan, which could help you pay off the loan sooner and save money on interest.

  • Are you currently paying private mortgage insurance (PMI) or FHA mortgage insurance? If your home’s value has increased while you’ve paid down the loan balance, you may have enough equity to cancel PMI and save money each month.

  • Have your personal finances changed? If your financial situation has improved, you may qualify for a better interest rate and loan program than you were initially offered. 

  • Is your adjustable-rate mortgage about to reset? If the fixed-rate period is nearly up, it’s a good opportunity to refinance into a new fixed-rate mortgage.

For many homeowners, 2022 is still a good time to refinance. But if it doesn’t speak to you or your situation, we have home equity loans that can help.

Maps Credit Union

Reasons to Consider a Home Equity Loan in 2022
Home equity loans are generally easier than refinancing. There is less paperwork involved, which can generally speed up the process.

Fees for a home equity loan are also considerably lower than refinancing fees. When refinancing, borrowers must pay closing costs on their new mortgage, which can be one to two percent of the loan amount.

A home equity loan allows you to use the money over time. Initially, you establish a loan amount, but you can let it sit interest-free; using it as needed for home improvements, debt consolidation, etc. This can be less expensive because you aren’t paying interest on money you aren’t using.

Home equity loans also let you borrow more from your home’s value. We can lend up to 90 percent of a home’s value in a home equity loan, whereas refinancing forces you to pay mortgage insurance if you borrow more than 80 percent of the value. With a home equity loan, there’s no mortgage insurance.

Home equity loans tend to have lower interest rates than personal, unsecured loans because they're collateralized by your property.

Key Takeaways
Refinancing and home equity loans both provide homeowners with a way to get cash based on the equity in their homes. With any type of refinancing or home equity loan, you should plan to continue living in your home for a year or more. 

We believe that 2022 is more than just a home equity market, it might still be a refinance market for you. At Maps, we offer both refinancing and home equity loan options. We want to work with you and help determine which option can help you reach your financial goals. Contact us today so we can help you make this important financial decision.

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