Most homeowners assume that if they’re going to refinance, it needs to be at a lower rate than they’re currently paying.
But in reality, rates fluctuate often — and financial situations change just as much. In many cases, refinancing is the best (or only) option, even if it means paying slightly more in interest for a short amount of time.
Not sure when you should consider refinancing — or when a higher interest rate could actually help you in the long run? Here are 5 situations that might warrant refinancing to a higher rate:
- You want to get rid of mortgage insurance. If you’re paying private mortgage insurance, it could be racking up hundreds of extra dollars in costs per year. Refinancing can help you get rid of that PMI. You’ll just want to make sure the savings equate to more than what you’ll pay in added interest.
- You want to shorten your loan term. If you’re paying slightly more in interest each year, but your loan is 15 years shorter, you’re definitely going to save in the long run. Just be sure you can afford the higher monthly payment.
- You’re looking to consolidate debts. Lots of debt — particularly credit card debt — is going to mean tons of interest paid over the years. Refinancing can help you consolidate those debts into one easily manageable payment. The slightly higher rate will likely still be lower than you’d pay across all your cards and accounts.
- You have an ARM. Refinancing should always be on your radar if you have an adjustable rate mortgage. Once your fixed period is up, that rate can go anywhere. Refinancing to a fixed rate — even a higher one than you’re currently paying — will likely be a smarter financial choice in the long run. Plus, it will give you a reliable, consistent monthly payment for the rest of the loan.
- To take out some cash. If you need extra cash to make home improvements or to cover college tuition or other costs, a cashout refinance can help you get it. Though the rate may be slightly higher, you can make that loss back by putting the funds into your home; improving its value means a higher selling price (and more profits) later on down the line.
Are you considering refinancing? Talk to an Embrace home loan officer today. You may qualify for a lower rate than you pay now, which means even more savings. Get in touch today to learn more.