Ask yourself these questions before applying for a mortgage refinance in 2024

Many homeowners rushed to refinance their mortgages as mortgage lenders lowered interest rates in 2020 and 2021. But interest rates have risen a lot since then, making mortgage refinancing a less attractive option these days.

The average cost to sign a 30-year mortgage today is 6.6%, according to Freddie Mac. And mortgage refinance rates are often a notch higher than purchase mortgage rates. That means you might pay a little more if you want to refinance now.

But just because mortgage rates are higher these days doesn’t mean refinancing is automatically a bad option. So before writing down your idea, ask yourself these questions:

1. Has my credit score improved significantly since taking out a mortgage?

Your credit score tells lenders (mortgages, etc.) how risky a borrower you are. If your credit score has improved significantly since taking out your current mortgage, you may qualify for a lower interest rate than you originally locked in, even though interest rates on today’s loans are generally higher.

On the other hand, if your credit score isn’t the best these days, it may not be a good time to refinance, even if the interest rate on your current mortgage is higher than the average interest rate offered by mortgages. Today, lenders.

That means you can boost your score by doing things like paying your bills on time and checking your credit report for errors.

2. Do you have high-interest debt that needs to be paid off?

Let’s say you currently have a 3% mortgage and the highest refinance rate you can get is 6.7%. You may think refinancing is a foolish idea. However, this may not be the case if you have high-interest debt that you are trying to pay off, such as credit card balances.

Let’s say you owe $100,000 on a mortgage with a 3% interest rate, but you also happen to owe $100,000 spread across several credit cards that are charging 17% to 24% interest. If you refinance your $200,000 mortgage (which you may be able to do with a cash-out refinance), your remaining $100,000 home loan balance will be higher. However, your credit card debt interest rates will be significantly lower. That means you may find that you can lower the interest rate on your debt by refinancing. Overall.

3. Am I looking for major home improvements that will improve the quality of my daily life?

Maybe your family has grown since you bought your home, and completing the basement will give you and your entire family much more space to live together. Or maybe you desperately need another bathroom in your home but don’t have the $35,000 it would cost to build one, so you put it in your savings account.

As with the case above, a cash-out refinance may make sense in this situation. Your mortgage may end up being more expensive. But in return, you get money to complete projects that will greatly improve your quality of life. And remember, if the loan becomes cheaper at that point, you can always refinance again at a lower interest rate in a few years.

For many people, it won’t make sense to refinance their mortgage in 2024. But to find out if you are an exception, ask yourself these questions: