Should you consider refinancing with rising rates? Yes

By Sathi Roy (NMLS ID: 1459669)

Rates are rising, so if you’re considering refinancing, it’s better to do it now as opposed to later, when they might be higher. We’ll walk through some scenarios to help you decide if now is the right time for you.

First you’ll need to look at how far you are into your current mortgage and determine your Combined Loan to Value (CLTV) ratio. Your CLTV compares your loan balance to your home’s value and includes all lines of credit that you may have open on your home. It’s expressed as a percentage, and a lower number is better. A good CLTV opens the door to new loans.

Next, take a look at your bigger financial picture.

5 times refinancing during a period of rising rates is a good thing

1. Your ARM is about to reset

If you’re coming up on the adjustable part of your adjustable rate mortgage within the next year or two, switching loans — whether to a fixed mortgage or another ARM — means your rate would be guaranteed for longer than it is now, regardless of market fluctuations.

2. You can consolidate other loans

Say you have student loans, medical bills, a couple of credit cards...basically, other debt that generally has higher interest rates than home loans. If your interest rates are higher on that unsecured debt than they would be on a new mortgage, then it might make sense to consolidate so you’re paying the same interest rate across all loans.

3. Your credit score improved

Woo hoo! If you boosted your FICO, you could qualify for more types of mortgages. Might as well see what’s out there. If you’re able to find a less expensive loan, you could end up saving a lot of money. Learn how to find the right lender for you.

4. You have more money coming in

You got a raise at work, your spouse got a raise, or your new job pays better. Another woo hoo! However your situation got sunnier, more money in your bank account means a better debt-to-income (DTI) ratio, which in turn makes you a more attractive credit risk, which — you see where this is going — means you’ll have better refi options. Everyone’s financial picture is different, so you might need to talk to a refinancing expert about your personal circumstances.

5. You live in a hot market

Obviously this one is beyond your control, but if you live somewhere with rising property values, that could mean good things for you. Maybe you’ve been putting some home improvement projects on the back burner, or you have other reasons you’ve been waiting to take a cash-out refinance. This is a fine moment to check into it before rates go up.

If you’re interested in learning more about how refinancing works and if it could be a good idea for you, check out the Better Guide to Refinance. It covers everything from how to determine your goals to how to shop around. As always, if you have questions, our Mortgage Experts are here with answers.

This article was originally published on