Cash-out refinancing is a great tool to fund home projects, pay off higher-interest debt, and give yourself a little more wiggle room in your monthly budget. Rates for a cash-out refinance are much lower than they would be for a personal loan, and tapping into the equity you’ve worked so hard to build up over the years can be a blessing for families in need of funds. However, refinancing doesn’t always make good sense for homeowners, especially those who’ve gotten mortgages over the last five years or so. You must analyze your personal finances and make the choice that’s right for you and your family.
The Importance of Interest Rates
Each point in your interest rate translates to tens of thousands of dollars that borrowers must pay lenders to satisfy their loans. Interest rates between 2012 and 2020 were the lowest they’ve ever been on a consistent timeline since the 200-year history of US interest rates began. Trends are showing that we’ve enjoyed lower rates for longer periods than at any other time in history. While housing prices might be high, borrowing is more affordable than it’s ever been since America was founded.
If your mortgage was made any time in the last five years and you got a prime rate, refinancing will cause you to pay more in interest than you’d be paying if you didn’t refinance, which can translate to higher monthly payments made for a longer period of time. If your credit has improved and you can now get prime rates for a refinanced mortgage, it’s a great time to get a loan. The current interest rate is only 4%, and it will probably continue to rise for the next few years.
Before you apply for a cash-out refinance, you must analyze your individual situation and these factors:
- Is your credit better or worse than when you got your mortgage initially?
- What is the current interest rate on your home’s mortgage?
- Will refinancing raise or lower your current interest rate?
- Can you pay off your mortgage before you retire?
- Is the money you need from the cash-out necessary for the health of the home?
- Do you have enough equity to make a cash-out refinance make sense?
- Are interest rates expected to drop, hold steady, or rise in the future?
- Is your current mortgage one with a variable interest rate?
If securing a cash-out refinance allows you to make repairs to your home, get a better interest rate or more favorable loan terms, and the refinance makes sense for your budget, do it. You won’t get better rates for several years, so this is your chance to help yourself.
The Importance of the Current Economy
The Federal Reserve hiked interest rates by three-quarters of a point this week in an effort to get inflation under control. While this decision was the right thing to do for the economy, homeowners need to understand how this rate hike affects their monthly budget. Anyone with a variable interest rate loan will have higher monthly payments starting this month, and it’s going to get worse before it gets better. It makes good sense to secure a traditional mortgage now before rates go any higher. While increased rates are an overall positive for the overheated economy, it’s going to cause borrowers to pay more. If it makes sense for your situation, don’t wait to refinance. That’s not a sales pitch: it’s solid financial advice.
Potempa Team has helped homeowners and buyers secure more than $2 billion in loans. If you’re considering a cash-out refinance on your mortgage, we can help you get the best possible rate. Contact us now to get started.