Bethpage Federal Credit Union: Does Refinancing Make Sense?


NEW YORK, May 09, 2022 (GLOBE NEWSWIRE) — During the pandemic, many homeowners have refinanced their mortgages and home equity lines of credit. Now, in this post-pandemic era, the Fed is announcing rate hikes to tighten the lending and refinancing environment.

With higher rates and many homeowners having recently refinanced, lenders have less incentive to offer attractive rates and terms to borrowers. However, deciding whether or not refinancing makes sense for borrowers can still be a straightforward exercise.

Typically, homeowners will want to achieve one of four goals when refinancing:

  1. Lower their interest rate to reduce monthly payments and interest charges over the life of the loan
  2. Shorten their loan term to pay off the loan faster and avoid additional interest charges
  3. Consolidate their mortgage and home equity loan or home equity line of credit (HELOC) into one monthly fixed rate bill
  4. Convert any variable rate mortgage to a fixed rate mortgage for more predictable monthly payments and avoid the risk of rising market rates

Read on to see if these goals can still be achieved in 2022.

Refinance to get a lower rate

If borrowers can refinance their current mortgage (and any additional home loans) to get a lower interest rate in the current environment, refinancing still makes sense.

As the Fed rate increases, if a borrower’s personal financial outlook has improved (better credit rating, less overall debt, increased income since their original mortgage), they may still qualify for a lower rate with a refinance.

Refinancing to shorten the term of the loan

Similarly, if the borrower’s objective is to profit from After monthly income by paying off their mortgage debt sooner, they are still likely to find refinanced loan options that reduce their short-term interest rate.

In 2022, refinancing into a shorter-term loan will generally still generate savings with overall lower interest rates (and, of course, less subsequent interest costs with the shorter-term loan).

Refinancing to consolidate home loans

If borrowers have both a mortgage and another home loan (such as a home equity loan or home equity line of credit), they likely have two separate monthly bills with two separate interest rates.

If the goal is simply to turn two (or more) bills into one, refinancing will pay off their real estate debt and roll over the remaining debt into one monthly bill at one interest rate.

If borrowers want to include credit card debt consolidation or other types of loans, a cash refinance can also help pay off those debts – by consolidating all of a borrower’s debt into one loan.

Although interest rates depend on the borrower’s income and credit status, as well as the amount of debt and the length of loan repayment periods, the current environment can certainly continue to allow borrowers consolidate their monthly bills through refinancing.

Refinance to convert variable rate loans

A variable rate loan in 2022 is starting to become a riskier proposition for borrowers. With Fed rate hikes, variable rates will likely rise.

Although lenders don’t have as many options for converting a variable rate loan to a fixed rate loan, borrowers can likely find refinance deals that offer a higher fixed rate than the borrower’s current variable rate. While this may seem contrary to a borrower’s savings goals, it can provide the predictability of a fixed rate in an unpredictable environment.

In 2022, refinancing still makes sense

Refinancing in 2022 simply means that borrowers need to ensure that their refinancing meets their goals. If lenders don’t offer improvements in interest rate, length of term, bill and rate consolidation, or fixed-rate conversions, borrowers shouldn’t bite.

While some may be feeling a last gasp from the strong pandemic refinance market, there is still time for borrowers to work with refinance lenders to secure deals that help them align their budgets and leverage the equity in their home. home – but as rates rise, those opportunities may start to dry up.

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