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Surge in Home Equity Spurs Refinances

Many of us associate the term “cash-out refinance” with the risky consumer behavior during the real estate boom, when some homeowners turned inflated home values into money machines, leveraging their equity to the maximum allowed. That didn’t end well for many but now that home equity is on the rise, cash-out refinancing is making a strong comeback, however, this time under much tighter guidelines. Cash-out refinances have grown to 17% of all refinance activity. Below are a few reasons a cash-out refinance may make sense for you in this low interest rate environment.

Debt Consolidation:
Most borrowers are concerned about the anticipated rise in interest rates and are consolidating high-cost credit cards, mortgage and other floating-rate debt such as home equity lines into fixed rate home loans. The replacement mortgages often carry 30-year rates from the low 4% range to just below 5%, depending on the borrowers’ credit and income profiles. A typical cash-out refinance client today has a floating-rate second mortgage or an equity line plus a first mortgage with an above-market rate and wants to roll those debts into a single fixed-rate mortgage. This lowers the payment, saves on interest expense and allows for better cash management.

Getting Rid of Mortgage Insurance (MI):
Another frequent use of cash-outs: Refinancing to remove FHA and Conventional mortgage insurance. For example, a recent client of mine did a $170,000 cash-out refinance on a house he purchased with a FHA-backed mortgage in 2010. The client paid off the $147,000 FHA loan balance and after transaction costs, he netted $20,000 in cash.   Not only did he remove the monthly $150 MI payment, he is now able to use the cash-out portion as a down payment on a investment property.

Lowering Your Current Mortgage Insurance Payment:
If you currently have a FHA or an older conventional mortgage with MI, chances are the monthly premium is relatively high. If you have a minimum of 5% equity (95% LTV) we can reduce the monthly MI payment (Typically 50%) by refinancing out of your FHA loan to a conventional product, or lower your current conventional MI payment using our “split MI” program. The idea is to replace the more expensive FHA MI payment with a lower conventional MI payment and reduce your interest rate at the same time.

Mortgage Rates:
Most forecasters are predicting that mortgage rates will rise in 2014 as the economy continues to improve and more jobs are created each month. That said, the only reason rates remain low is unfortunatey due to turmoil across the Globe driving investors to purchase safer US Bonds and Mortgage Backed Securities, thereby keeping rates lower.

Current Conforming Rates (Pmyts based on a average loan amount of $250,000) for a historical perspective on rates please visit my blog on our website
Loan Program Monthly Pmyt Rate APR Points
30YF Choice $1192 4.00% 4.098% 0
30YF $1229 4.25% 4.33% 0
20YF $1531 4.125% 4.375% 0
10YF $2557 3.375% 3.625% 0
15YF $1771 3.375% 3.625% 0
5/1 ARM $1070 3.125% 3.375% 0
7/1 ARM $1088 3.25% 3.375% 0
FHA 30YF $1157 3.75% 3.875% 0
FHA 15YF $1756 3.25% 3.50% 0

 

Current High Balance Rates – Max Loan Amount $625,500 (Pmyts based on a avg loan amount of $550,000)
30YF Choice $2665 4.25% 4.335% 0
30YF $3169 4.50% 4.75% 0
15YF $4510 3.625% 3.875% 0
5/1 ARM $2393 3.25% 3.50% 0
7/1 ARM $2469 3.50% 3.75% 0
FHA 30YF $2586 3.875% 4.125% 0
Disclosure: These are our current conforming and High Balance rates based on primary residences only, your actual rate could be higher depending on several “Risk Factors” such as credit score, LTV, Cash-out, Investment prop, 2nd home, zero cost etc. Please call us for an accurate custom quote including jumbo loans up to $2 million and beyond

The cornerstone of Trulending Mortgage is a fierce commitment to integrity, service and expertise and these core values have, thankfully, resulted in client relationships for life. We appreciate the opportunity to work with you on your next refinance or home purchase transaction. Visit our testimonial section to see what our customers are saying. Please pass this along if you think we can help any of your close friends or family.

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