Should you refinance during rising rates?

If you’re thinking about refinancing your house and you’ve been on the fence; now would be a good time to start that application. Interest rates are all relative so it’s important to understand the total picture when deciding whether you should refinance your property.


It’s no surprise that the federal reserve more than likely is going to increase the federal funds rate in the 1st half of 2022. People often assume that when federal funds raise rates, mortgage rates rise as well. That’s not necessarily the case. Generally, what happens when the federal funds rate raises, the cost of corporate funds increases, and the opportunity to invest in individual equities i.e., the stock market, becomes less attractive. People then are looking for a haven to park their money. Somewhere they can get a more guaranteed yield on their investment. That place is often the bond market or the fixed income market. When the bond market rises, and yields climb interest rates to the consumer come down. So, it’s very possible it could start trending down when the fed increases rates. But there’s a bigger picture here at play. Let’s say that you have a new car that you’re looking to purchase, get a new credit card, or a new loan of any form. All these interest rates will automatically be higher. Making the payment today at $300 a month goes to $400 a month of consumer debt specifically. If the federal funds rate does what they’re poised to do, interest rates on all other consumer products are going to automatically rise. As a result, most short-term rates follow the federal reserve rate. Making that 30-year mortgage at 3.75% when all your other consumer debt is 10% or 12% starts looking a lot more attractive when you start considering the tax deductibility. Maybe it might make sense to consolidate all your consumer debt while you can before the rates on those products start to climb. This also means home equity lines of credit are going to be less attractive. Those are directly tied to the prime rate which is a subset of the primary. As a result, if you have a home equivalent of credit with a balance on there, it might not be a bad idea to you consolidate your 1st and 2nd mortgage into one new loan. Thereby increasing your deductibility and preventing the payments on your debt from rising.


The reality of it is in a rising interest rate environment, the refinancing opportunities are the following:

  • Cash out refinancing for home improvement.
  • Cash art refinancing to pay off consumer debt.
  • Cash out refinancing to buy other property since most families have newfound equity gained in 2022.
  • Moving into a 15-year mortgage loan from a 30-year-old mortgage loan.
  • Refinancing to drop nondeductible expensive PMI which for most loans can be anywhere between $300 to $400 a month or more.


Just because mortgage rates are a little higher now than they were in 2021, doesn’t necessarily mean there’s not a benefit for refinancing your mortgage and lowering your monthly payment. You still can and should refinance before interest rates start to climb which they inevitably will in the coming months.



If you’re looking for a mortgage and are trying to just decide whether it makes sense to refinance your house or not start today no-cost loan quote!


are usda loans worth the hype

Are USDA loans worth the hype?

The US Department of Agriculture guarantees loans for certain families in certain geographic locations. These…

How to align expectations with market conditions to buy a home

How to align expectations with market conditions to buy a home

You have decided to you want to buy a home. You supply the lender with…

Mortgage loan programs for unconventional scenarios

Mortgage loan programs for unconventional scenarios

If you’re trying to get a home loan to purchase a home, but you’re self-employed,…

hy to plan for the long term when buying a home

Why to plan for the long term when buying a home

Getting your piece of the American dream, buying a home, it’s one of the pivotal…

View More from The Mortgage Files:

begin your mortgage journey with sonoma county mortgages

Let us make your mortgage experience easy. Trust our expertise to get you your best mortgage rate. Click below to start turning your home dreams into reality today!