Refinance vs. Ride It Out: What to Do When Rates and Costs Are Higher

If you got your mortgage during the ultra-low-rate era, the idea of refinancing in a time when rates are higher feels…wrong? After all, why would you touch your mortgage if you’re comfortable with your nice low rate until you have to make a change?

Fair question. Nobody is out here refinancing for the thrill of it. 

Refinancing is not just about getting a lower rate.

If you got your mortgage after the “COVID times,” then we do recommend looking at refinancing, as rates are lower and it’s an opportunity to save on some interest costs.

Most often, folks come to us to refinance to lower monthly payments, clean up expensive debt, access equity for other projects, or get ahead of renewal while you’re in a good spot.

If you are stuck between refinancing and just riding it out until renewal, let us help give some context behind when you might want to refinance before that renewal comes up.

Higher Does Not Automatically Mean Bad

Let us clear up one thing right away. Rates are not necessarily "high" in some dramatic historical sense. 

They are higher than the unusually low period many people got used to during COVID, and that comparison has a way of making everything feel like we’re off the charts with rates.

Rates are relatively stable right now, but what is different are costs. Costs have increased over the last six years. And that puts additional pressure on your mortgage amount and interest costs.

Something to also consider is that not all rates are considered equal. Your rate will change depending on how you structure your new mortgage (i.e. insured vs uninsured, mortgage amount, term, etc.)

You should be asking the question, "Can refinancing improve my current financial situation?"

What Refinancing Actually Changes

Refinancing means replacing your current mortgage with a new one. That involves breaking your existing term early, paying a penalty, and potentially taking on legal or appraisal costs depending on the situation.

Again, it sounds like we’re trying to convince you not to refinance, but if the math makes sense,  refinancing can also create real benefits, such as:

1. Lowering monthly payments by stretching loan amortization. 

2. Consolidating high-interest debt into one, more manageable payment.

3. Accessing home equity for renovations or major expenses.

4. Moving from an unpredictable payment structure into something more stable.

When Riding it Out Usually Makes More Sense

There is no prize for refinancing if the math doesn’t check out.

Riding it out may be the better option if:

1. Your Penalty is Too Expensive

If breaking your current mortgage costs more than the potential savings or benefits from the new mortgage, it’s not a good decision. Refinancing in this situation can solve one problem by creating another.

2. You Are Close to Renewal Anyway

If your term is ending in the near future, waiting for renewal can give you more flexibility without large penalty costs. The closer you are to your renewal time, the less you’ll have to pay.

3. The Refinance Does Not Actually Improve Your Financial Picture

If the new mortgage only improves one aspect of your finances, but adds new costs or gives you very little real benefit in terms of day-to-day budgeting, it may not be worth pursuing now.

4. Your Payment is Still Manageable

If your current mortgage still fits your budget and there is no urgent reason to restructure, staying put may be the right choice.

When Refinancing Can Make a Lot of Sense

Even in a higher-rate environment, refinancing can still be the right move in some situations.

1. You Need Cash Flow Relief Now

If monthly payments are getting tight, a refinance may help create breathing room. That could mean restructuring your mortgage, adjusting amortization, or rolling other higher-cost debt into a more manageable payment.

2. You are Carrying Expensive Consumer Debt

If you have credit card balances, unsecured lines of credit, or other debt with much higher interest rates, consolidating that debt through your mortgage can sometimes improve cash flow and reduce the total interest burden.

3. You Want to Access Equity 

If your previous mortgage didn’t have a way to access your equity, such as through a Home Equity Line of Credit, then refinancing can open up that avenue for you to complete renovations, invest in another property, pay for schooling, etc.

What Do You Do Right Now?

We love to say it, but with mortgages, it’s always true. 

It depends!

What we do know is that you won’t know what to do until you talk to your mortgage broker so they can look at your mortgage and financial situation.

Here are a few questions to ask during that conversation:

1. What will it cost to break the current mortgage?

2. What are the legal, appraisal, or setup costs?

3. How much will the new payment change?

4. Will this improve cash flow?

5. If I wait until renewal, what position would I find myself in?

The right time to refinance depends on your penalty, your payment requirements, your debts, your goals, and your timeline. Sometimes waiting is the better choice. Sometimes refinancing creates enough value to be worth it.

Reach out to one of our awesome team members to have them help with your refinance decision.