REFINANCING & HELOC’S – AN OVERVIEW
If you have been following the financial markets recently, it’s hard to ignore some of the market trends and contributing factors! Due to political uncertainty, worldwide supply chain disruptions, the Coronavirus, mandatory quarantines, market fluctuations, and more, we’ve seen a continued trend of downward pressure on mortgage rates. All considered, this makes for a great time from a long-term rate perspective to refinance your mortgage at a lower monthly payment, or pull out equity in your home from a HELOC (home equity line of credit) or cash out refinance of your loan.
Also of importance, mortgage rates are not 0%! The Fed cut it’s benchmark federal funds rate to 0%, and this rate does not directly mirror mortgage rates. Here is a good overview from a recent article from CNN. Experts do expect these short term rate cuts to have downward pressure on mortgage rates, exactly how much remains to be seen.
And if you do decide to open a HELOC or refinance your mortgage, please understand that lenders are very backed up with exiting applications! We’ve heard from most lender partners that home purchases are being prioritized over refinances.
REFINANCING
Refinancing your mortgage can be a great tool to decrease monthly housing expenses and establish or draw upon the appreciated value of your home.
Are rates are lower than they were when you bought your home? Chances are, yes! By taking advantage of lower rates, you may be able to lower your monthly mortgage payment. Also, if you financed your home for less than 20% down, there is a chance the value of your home has increased to exceed the 80% loan to value ratio. Once you reach the 80% threshold you may be able to drop the Primary Mortgage Insurance that you are unnecessarily paying for! Moreover, if you have a lot of equity in your home, you can refinance at a low rate and pull out equity to use for a variety of life’s circumstances or financial investments for your family’s future. Also of importance, income from a cash out refinance is not taxable as income would be!
HOME EQUITY LINE OF CREDIT
A home equity line of credit (HELOC) can be a powerful tool when it comes to utilizing established equity in your home. A HELOC allows you to open up a secondary line of credit based on your equity. Lenders typically use ~80% equity as the borrowing thresh hold. You do not have to use the line of credit, and you will not be required to make any payments until you do! The credit made available via HELOC can be used like cash and opens up many possibilities for a homeowner. Maybe you want to renovate the kitchen or finish your basement? Maybe you are interested in purchasing a rental property? Using a HELOC can be a great way to improve your properties, cover unexpected expenses, or create passive income for your family with a cash flow real estate investment.
WHICH IS BEST FOR YOUR NEEDS? HELOC OR REFINANCE?
It’s important to note that a HELOC is a line of credit you draw against, and this typically comes with an adjustable rate that increases as the drawn money is held by the borrower for longer. A cash out refinance is essentially a new fixed loan that replaces your old mortgage, and allows you to take a check for your desired equity amount. Both can be powerful tools depending on your financial needs and time frame.
Written by Ross Pritchard and Collin O’Berry
Curious to learn more? Contact the Altamont Property Group for more info and expert guidance on how to succeed financially and with real estate! Collin can be reached at collin.oberry@gmail.com or 828-772-1667. Ross can be reached at rosspritchard@kw.com or 205-908-7853.
