February 5th, 2019 8:48 AM by Jackie A. Graves, President
FREEHomeRefinanceAnalysis FREEFHAStreamlineRefinanceAnalysis FREEVAStreamlineRefinanceAnalysis
million homeowners can reduce their mortgage interest rate by refinancing,
according to a recent mortgage report by Black Knight, a mortgage
data and analytics company.
may have a small window to snag a lower rate
rates continue to slide, homeowners who were locked into rates north of 5
percent can benefit; especially if their credit has improved and they now
qualify for a lower rate. In fact, experts predict that sub 5-percent rates
will persist throughout 2019, according to a recent survey by the American
But that may
not last. According to the 15 economists who took part in the survey, the
30-year fixed-rate mortgage will steadily climb. They predict a 4.6 percent
rate in the first quarter of 2019, up to 4.7 percent by Q2, then 4.86 percent
in Q3 and, finally, ending the year at 4.91 percent. They also predict rates of
around 5.05 percent in the first quarter of 2020.
homeowners who might qualify for a lower interest rate, this could be one of
their last chances to get a better deal on their home loan before rates tick up
How cash-out refinancing works
way cash-out refinancing works is that you refinance your mortgage for a larger
sum (more than what you owe) and, ideally, lock in a lower interest rate than
your current one.
lenders will extend a line of credit of up to 80 percent of the home’s LTV. For
instance, if your house is valued at $250,000 and you owe $150,00 then you have
$100,000 in equity, which means you might qualify for a $50,000 loan. Your new
mortgage will go from $150,000 to $200,000 if you take the full amount you
of the best ways to ensure that you get a good deal when you refinance is to
make sure your credit (FICO) score is strong.
higher your FICO score the more competitive your rate will be. For instance,
borrowers with a FICO score between 660 and 679 will pay about 40 basis points
more than someone with a better FICO score of between 700 and 759.
with credit checks and employment verification, cash-out refinances are also
similar to first mortgages in that borrowers usually must pay closing costs.
Like first mortgages, closing costs are 3 to 6 percent of the total
if closing costs are 3 percent, it will cost $5,700 to refinance your existing
loan. This is a powerful reminder that the math should check out before you
make up your mind on a cash-out refi.
who use cash-out refis to make repairs or upgrades can deduct the mortgage
interest from their federal tax returns while reinvesting money back into the
home. This might be a good option, particularly if they can lock in a lower rate.
out of your home to pay off high-interest debt might make financial sense, but
first make sure the math checks out, says Greg McBride, CFA, chief financial
analyst at Bankrate.
refinancing is beneficial if you can reduce the interest rate on your primary
mortgage and make good use of the funds you take out,” McBride says. “Keep in
mind that the repayment on whatever cash you take out is being spread over 30
years, so paying off higher-cost credit card debt with a cash-out refinance may
not yield the savings you’re thinking. Using the cash out for home improvements
is a more prudent use.”
If you have
significant debt with double-digit interest rates, then it’s worth it to crunch
the numbers to see if you come out better refinancing your house and paying off
the debt that way.
fixed cash-out mortgage in most cases is still under 5 percent, which is
substantially lower than credit card debts at approximately 20 percent or
student loans, which are now at more than 5 percent,” says Shashank Shekhar,
CEO of Arcus Lending in San Jose, California.
with cash-flow problems because of short-term installment debt might also
benefit from combining their car loans and credit card debt into their mortgage
to get a lower monthly payment.
“If, after a
point of time, cash flow is not a concern anymore, they can take the monthly
savings and invest it back into the mortgage by making an extra payment towards
their principal balance, thus paying off their mortgage faster and saving on
the interest cost,” Shekhar says.
this could also result in paying more interest overall or extending the
debt over a longer period of time, so it’s important to look at the numbers and
discuss this option with a financial advisor.
Keep in mind
that it doesn’t make much sense to finance a car that will be used up in six or
eight years with mortgage debt that extends to 30 years.
cash-out refis may be a bad idea
refinancing calls for caution if doing so increases the rate of your existing
mortgage, if it puts you back into paying PMI after you’ve shed it, or if it
means dragging out the repayment of an existing debt for decades when you could
have paid it off much sooner and at a lower total cost otherwise, McBride says.
A loan calculator will help you determine
the total interest cost of that added debt versus another option.
short-term, higher-rate loan may result in lower total interest cost than a
three-decade repayment at a low mortgage rate,” McBride says.
drain their equity to pay for things like vacations and entertainment could be
digging themselves into a hole. This is especially true if you refinance into
another 30-year home loan — setting back the clock and dragging your mortgage
well into retirement age. This is a high cost for spending that hurts you
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