March 1st, 2019 1:22 PM by Jackie A. Graves, President
seem to be the only thing that’s affordable in today’s low-inventory,
high-priced housing market. This is good news for both homebuyers and those who
want to refinance into a lower rate.
steadily since last year’s high of 5.10 percent in November, the benchmark
30-year fixed mortgage rate has slumped to a one-year low of 4.33 percent.
homeowners, these lower rates signal a chance to save money on interest
payments through refinancing. The percentage of refinances in all mortgage
transactions increased to 35 percent in January, up from 29 percent in December
of 2018, according to the January Origination Insight Report from Ellie
reductions in interest rates result in some increase in refinances, as
homeowners look to lower their payments, but the larger the decrease in rate,
the higher the increase in refinance activity,” says Jonathan Corr, CEO of
refinancing can potentially save you thousands of dollars in interest and lower
your monthly mortgage payments, it can also be costly.
refinance, you’re replacing your current mortgage with a new one, so the lender
will do the much of the same due diligence they would with the original
mortgage, such as: conduct a title search, run a credit check and do an
appraisal. These things all cost money. This, in addition to closing fees and
origination fees, can add up to a few thousand dollars.
you spend the time and money on refinancing, make sure it’s a cost-effective solution.
refis are the new upsizing
reason to refinance is to draw equity out of your home, while presumably
lowering your interest rate. This is called a cash-out refinance or cash-out
who have equity in their homes can refinance into a new mortgage and simultaneously
borrow against the equity in their home. Lenders normally lend up to 80 percent
of the appraised value of the home; any more than 80 percent and borrowers face
paying private mortgage insurance, or PMI.
interest rates for cash-out refis are lower than personal loans,
which is one of the main selling points for selecting this option.
equity nearing $15 trillion in the U.S., many experts believe that the number
of cash-out refis will continue to rise. One of the reasons for this, explains
Corr, is that existing homeowners have fewer options in the way of inventory,
so they’re looking to upgrade what they already have and financing those
projects with equity-based loans.
A recent report by Freddie Mac shows that more
seniors are choosing to age in place. Almost two million existing homes,
occupied by seniors, are off the market, the report shows. Historically,
seniors would have downsized, moved into a retirement community or moved in
with family, but instead they’re staying put which, among other problems, is
keeping a chokehold on inventory.
predict this trend will grow as the number of seniors increases and obstacles
to aging in place are removed.
are tapping their equity, especially over the past two years, as home values
continue to appreciate while inventory remains low,” Corr says. “Many homeowners
looking to upgrade their living space are choosing to renovate or add to their
current homes rather than purchasing something new. This trend is primarily
driven by a sharp rise in home values since 2011, which has produced a
corresponding increase in home equity.”
cash-out refis can be a smart choice for some homeowners, especially if they
can lock in a lower rate and use the money for home renovations which are tax
deductible, they can cost some borrowers more than they would save.
chief financial analyst at Bankrate, notes that borrowers who already have a
low interest rate could ruin a good thing by doing a cash-out refi.
rates are currently at a one-year low – but remain higher than anything seen
for the four years prior to that. So, while the recent drop in mortgage rates
is a good opportunity for someone that took out a loan last summer or fall,
rates aren’t at a point where they’re going to unleash a torrent of
refinancing. You don’t want to refinance your entire mortgage balance that is
at a 3.5 percent rate into a 4.5 percent rate just to get some cash out,”
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