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Does It Make Sense for You to Refinance Your Mortgage Right Now?

Given high mortgage rates, you won't be able to lock in a lower rate by refinancing. But you might want to refinance for other reasons.

Jason marz/Getty

In today’s housing market, refinancing a mortgage is a far more complicated question than it was just a few years ago. 

When mortgage rates were historically low in 2020 and 2021, homeowners who refinanced could take advantage of a lower monthly payment, pay for home improvements or consolidate debt. In the end, it saved them a ton of money. 

Now that mortgage rates are much higher, it doesn’t make sense to refinance for those reasons, but it could under some circumstances, including if you want to change your mortgage type or remove someone from your mortgage.

Are there other advantages to refinancing in a high-rate environment? What about when mortgage rates start to come down over the next year or two? Whether you’re looking to tap into your home’s equity, shorten your home loan’s term or lock in a new interest rate, here’s what to consider when refinancing.

How does mortgage refinancing work? 

When you refinance, a new home loan replaces your existing mortgage. Just like getting a mortgage, you’ll need to apply for a loan, have a home appraisal and pay closing costs. The main difference is that instead of shopping for a new house, you’ll keep your current home. 

You have two basic options when refinancing: a rate-and-term refinance and a cash-out refinance. A rate-and-term refinance alters the interest rate or term (sometimes both) of an existing mortgage, and equity isn’t taken out of the home. With a cash-out refinance, you’re getting a new loan that’s worth more than what you owe and pulling out equity. The difference is paid to you in cash.

5 factors to consider before refinancing

When mortgage rates hit historic lows during the pandemic, a rush of homeowners were able to refinance to a lower rate. But with current average rates at well above 7%, getting a new home loan isn’t as attractive. In August, 90% of borrowers saw an average 2.34% rise in their interest rates as a result of refinancing. 

When determining if refinancing makes sense, ask yourself if it will help improve your current situation. Here are five major factors to consider: 

Interest rate

Compare your existing interest rate with current rates. A general rule of thumb is that you should refinance your mortgage if you can secure a rate that’s at least 1% lower than the one you currently have. 

Home’s equity 

You’ll also need to have enough equity in your home, typically at least 20% to qualify for a refinance.

Cost of refinancing

When you refinance, you won’t have to make a large down payment, but you’ll still have to pay closing costs. Refinance closing costs are usually 2% to 6% of the new loan balance, so factor in potentially paying thousands of dollars in fees. 

Mortgage type

Decide if you want to switch the type of mortgage you currently have through refinancing. For example, you may have an adjustable-rate mortgage but want the security of a fixed-rate mortgage. If you have an FHA loan, you may want to switch to a conventional loan to eliminate the need for mortgage insurance

Time you’ll live in your home

It can take several years to recoup the cost of refinancing, so a refi might not make sense if you plan to say goodbye to your house in the next two or three years.

When it makes sense to refinance your mortgage

If your main goal is to score a lower interest rate, now’s not the best time to refinance. But mortgage rates won’t be this high forever. Most major forecasts show mortgage rates slowly trending down in 2024. Though it’s unlikely rates will return their pandemic lows, even a dip of even 0.75% on your rate could make refinancing worth it. 

The most important thing is to consider both your short-term and long-term goals, said Shelby McDaniels of Chase Home Lending. Here are some other reasons you may want -- or need -- to refinance: 

You want to switch from an ARM to a fixed-rate mortgage

If you have an adjustable-rate loan that’s about to have a rate increase, you may consider refinancing to a fixed-rate home loan to avoid the risk of future rate hikes.

You want to eliminate mortgage insurance on an FHA loan

Regardless of your down payment size, FHA loans require you to pay mortgage insurance for the entire life of your home loan. One way to get rid of it is to refinance to conventional loan once you have 20% equity in the property. 

You want to change the length of your loan term

Refinancing to a longer loan term (for example, from a 15-year mortgage to a 30-year mortgage), can lower your monthly payment, though it will require paying more in interest over the life of the loan. Conversely, shortening your loan term with a refinance may raise your monthly payments, but you’ll save on interest in the long run and build equity in your home faster. 

You want to tap into your home equity

You can use a cash-out refinance to leverage the equity you’ve built in your home and get cash to help cover a large expense. But because a cash-out refi replaces your current mortgage rate with a new rate -- one that will likely be higher than what you currently have -- home equity loans and home equity lines of credit, or HELOCs, may be a better option.

Your credit score has improved

Your credit score is one of the main factors in determining what mortgage rate you qualify for. If your credit score has improved significantly since you took out your mortgage, you might refinance to score a lower interest rate than what you currently have, though that may be difficult in today’s rate environment. 

You need to take someone off the mortgage

If you need to remove someone’s name from a mortgage in the case of a divorce or another circumstance, refinancing is the most common route. You’ll apply for a new home loan just in your name (you’ll have to qualify based on your income and credit score only) and use the funds to pay off the existing mortgage. 

When it doesn’t make sense to refinance your mortgage

Regardless of what’s going on in the housing market, experts say refinancing isn’t a good idea in some situations. If it won’t save you money in the long run, or you’re planning on moving soon, refinancing could put you further behind on your financial goals, said Sean Casterline, president of Delta Capital Management. 

You can’t get a lower interest rate

If your goal is to get a lower interest rate, right now isn’t the best time to refinance. You’re likely to end up with a higher rate, plus you’ll need to pay closing costs on your new mortgage. If you can hold off, mortgage rates are expected to slowly trend down over the next couple of years. 

You’re planning on moving soon

If you’re planning on moving in the next few years, a refinance probably won’t save you money. Even if you can score a lower interest rate, it can take years of lower payments to recoup the money you spent on closing costs. 

You’re almost done paying off your mortgage

If you’ve paid off the majority of your mortgage, it’s worth sticking it out with your existing mortgage or refinancing to a shorter repayment term to meet your goals. That’s because once you refinance, you’re starting over with a new loan and term that can cost you significantly more in interest charges. 


  • Potentially score a lower interest rate

  • Eliminate mortgage insurance

  • Cash in on your property’s value to fund home renovations or consolidate high-interest debt


  • High fees

  • Difficult to get a lower interest rate in today’s environment

  • Can take several years to recoup the benefits of refinancing

Next steps

If you’ve determined it’s the right time to refinance, look around for the best offer. Start by figuring out what type of refinance loan you need to narrow down your options. Then look at a few different types of banks and credit unions. To accurately compare the refinance rates and fees between lenders, you’ll need to submit an application to receive a loan estimate from each one. 

Is refinancing right for me?

There’s no right or wrong answer to this question. Like any big financial decision, pursuing a mortgage refinance depends on your personal financial situation and goals. If you can lower your rate, your credit is reasonably good, your household has steady income and you still owe a considerable amount on your mortgage, then a refi is worth exploring. If you’re not sure, call your lender and ask for input to see whether you might benefit.

Katherine Watt is a CNET Money writer focusing on mortgages, home equity and banking. She previously wrote about personal finance for NextAdvisor. Based in New York, Katherine graduated summa cum laude from Colgate University with a bachelor's degree in English literature.
Alix is a former CNET Money staff writer. She also previously reported on retirement and investing for and was a staff writer at Time magazine. Her work has also appeared in various publications, such as Fortune, InStyle and Travel + Leisure, and she also worked in social media and digital production at NBC Nightly News with Lester Holt and NY1. She graduated from the Craig Newmark Graduate School of Journalism at CUNY and Villanova University. When not checking Twitter, Alix likes to hike, play tennis and watch her neighbors' dogs. Now based out of Los Angeles, Alix doesn't miss the New York City subway one bit.