Opting to Refinance for Cash

Last year, the mortgage industry as a whole helped more homeowners and those who were seeking to become homeowners than any other year since 2007. Cash from properties through refinancing for homeowners who sought to cushion themselves in odd times or update their homes also were served in record numbers.

Those of us, who remember back to 2008, may recall that cash-out refinances earned a not-so-nice reputation when home prices dropped and homeowners were left with more of a mortgage on their homes than the homes were worth. In 2021, there is backing by the economy that home prices will keep growing and the same situation isn’t happening as in 2008. The interest in those that want to become homeowners is far greater than the supply of homes available. That is the most crucial difference between 2008 and 2021.

As mortgage rates rise, I can offer these questions for you to review before you apply for a refinance to take money out of your home:

• How quickly should I make a decision? According to forecast data from Black Knight Inc., about three million homeowners are expected to refinance in March of 2021. It’s not a good idea to rush, but it is a good idea to work through the numbers with your mortgage advisor. Working with a trusted advisor can help.
• How will the equity that I have in my house be affected by taking cash out? If you are holding private mortgage insurance, you must keep 20% of the value of the home in the home. Many homeowners benefit by having a new appraisal completed on the home to discover their equity available for cash.
• Should I opt for a cash-out refinance? Basically, borrowers are trading in their current mortgage for a new own that will produce a lower interest rate but a higher balance. It’s important to ask yourself what you would do with the money. If the extra money doesn’t look appealing, you can always lower your payments and even shorten the life of the loan without taking the cash-out option.
• What rate will make the difference? The monthly mortgage payment will often give you the best numbers to make a decision. During mid-March, the mortgage rate rose to 3.05% for a 30-year mortgage. While the rate is slightly higher than the low rates we saw over last summer, the 3.05% rate still makes sense for a homeowner whose rate is over 4%.
• Can closing costs outweigh the benefit of refinancing? According to a firm name Closing Corp who provides real estate data to the industry, the average across the nation for closing costs related to refinancing is close to $3,400 for title insurance, taxes if applicable, appraisal fees and such. Closing costs have not changed much over time. Working with a trusted mortgage advisor can help support you in discovering your home’s true value as well as help check that the math makes sense.
• How do I consider points when refinancing? The best way to explain points is to think of them as prepaid interest on the loan. This interest related cost is added at the front of the loan when locking in a lower rate. If you are trying to lower your overall interest and enjoy a lower rate, it most likely will pencil out. If you plan to stay in your home for 30 years and the costs can be recouped within a couple of years, generally, I support saving the money you’ll save in the new loan.

The average cash-out last year was $50,000 according to the Fed’s available data. Last year about one-third of those homeowners refinancing opted for cash from their homes according to Freddie Mac.

Call 360-607-9312 or email MPattullo@PeakMtg.com for help calculating your mortgage options.

We lend where we live,

Mike