The How-to-Refinance Toolkit: What Rising Rates Mean for Refinancing

By Richard Barrington
NFNS Columnist

One thing mortgage borrowers understand about how to refinance is that falling interest rates create opportunities to replace old loans with new ones, and at lower interest rates. Does this mean that when interest rates are rising, it's game over for refinancing? Not necessarily.

Your how-to-refinance toolkit should include tactics for how to benefit from refinancing even in an environment where the interest is rising.

Check the Vintage on Your Mortgage

While interest rates have risen overall since bottoming out in 2003, they are still considerably lower than they were through most of the 1970s, ‘80s, and ‘90s. If you have a fixed-rate mortgage that was initiated seven or more years ago, chances are you could still save by refinancing.

Shorter Should Be Cheaper

There is a built-in factor that favors refinancing as the remaining term of your mortgage gets shorter. In general, 15-year mortgages have lower interest rates than 30-year mortgages. This differential has averaged nearly half a percent since the early 1990s. By the time you get down to the last 15 years of a 30-year mortgage, you might be able to do better with a new 15-year loan than with the remaining 15 years at your original 30-year interest rate.

The ups and downs of market interest rates will have a lot to say about what is feasible, but all things being equal, shorter loans generally carry lower interest rates.    

Debt Management

Refinancing can also be an important debt-management tool. By spreading your remaining balance over a longer period of time, it can lower your monthly payments. Naturally, extending the term of a loan means you will pay more in the long run, but if this makes the difference between making your monthly payment and not, it could be the best option.

About the Author
Richard Barrington is a freelance writer and novelist who worked as investment industry executive for over twenty years.

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