One of the most popular aspects of owning a home is to pull out money in a cash out refinance mortgage for major purchases. You can do whatever you like with the money, but the most popular uses of equity include paying for college, home renovations, and buying investment property. 2018 is looking like a time of growing home prices and rising interest rates, although they are still quite low when taking the proper historical view.
More Flexibility in Qualifying for Cash Out Mortgage Refinancing from Fannie, Freddie, FHA, VA and Private Money Sources
If you are thinking of a cash out mortgage this year, here are some great reasons to pull the trigger now:
#1 Rates Are Rising
After Trump was elected president, the Federal Reserve raised rates. That increase was already scheduled for earlier in 2016, but combined with the rise in rates after Trump won, rates for a mortgage refinance did go up significantly.
Midyear 2016, rates were in the range of 3.6% for a 30 year fixed loan. In January, Freddie Mac rates published a report that rates had risen to 4.125% on the same loan for qualified applicants.
While these rates are still very low historically, there are signs that rates could rise further in 2018. The IMF has raised economic expectations for US GDP based upon what Trump wants to do with tax and spending policies. Also, the Fed has suggested that more rate hikes are on the near horizon.
So, for those mulling cash out refinancing, you may want to do it sooner than later, as a .5% increase in rates could make the refinance less worth the cost. Cash out refinance rates remain attractive.
#2 Home Prices Are Rising
There is a general feeling in the country that Trump will be good for the housing industry. This could lead to an increase in home prices and an increase in equity. Already this year, home prices were rising nicely in most of the country at the rate of 3-5% per year on average.
With home prices rising, there is a good chance that you have substantial equity in your home that you can use for things that you really need.
Also, note that the HUD raised the FHA loan limits on conforming and FHA mortgages this year. This indicates that home prices are rising and the federal government thinks they will continue to do so.
#3 Lending Standards Are Continuing to Be Relaxed
It was tough to pull cash out of your home right after the mortgage meltdown of 2009. In many instances, cash out lenders were very tight with their money. Today, things are largely back to normal in most parts of the country.
If you have not made any late payments on your mortgage in the last year and have at least average credit, you should be able to do a cash out refinance, pull out cash and still get a lower rate on your mortgage.
#4 Cash Out Refi’s Offer a Fixed Rate
A big benefit of a cash out refinance mortgage is that your rate is fixed for 15 or 30 years. This means that you know exactly how much you are going to be paying for many years.
This is different than a home equity line of credit, AKA, HELOC which has a variable interest rate.
Many home owners prefer the security of a fixed rate refinance, even if the rate is slightly higher in the short term than a HELOC variable rate.
#5 Increase the Value of Your Home
Done wisely, renovations on your home with home equity can add substantially to the value of the property. When you sell your home, you will be able to see a substantial return on your investment.
#6 Mortgage Rates Are Much Lower Than Credit Cards
Some homeowners opt for pulling cash out of their home to pay off higher interest debts, such as credit cards. If your interest rate on your cash out refi is 4.5%, you could easily save 10% or more in interest per year over a credit card.
Also, mortgage interest is tax deductible whereas credit card interest is not. If you are going to pay interest on debt, it makes more sense to pay a low rate rather than a high rate, AND write off the interest on your taxes.
#7 You May Qualify for a Cash Out Mortgage with No Closing Costs Up Front
A common option today allows you to avoid paying your closing costs up front. You can have them tacked onto your loan balance and pay them over time.
As closing costs can amount to two or three percent of the loan balance, the closing costs are a substantial cost. Why not take advantage of this and wrap the closing costs into your new cash out mortgage?
#8 Cash Out Rules Are Easier to Qualify for with FHA
If you have an FHA loan, you can do a cash out program with FHA. While you do need to qualify with income and credit, the lending criteria are quite flexible. Many homeowners can qualify with a credit score in the mid 600’s and in some cases with even lower credit scores.
Takeaways for Today’s Cash Out Mortgage Programs
Pulling cash out of your home and refinancing is a good way to get a lower rate and to get the cash you need for college, home improvements or paying off debt.
Rates are still quite low, and could rise in the future, so you probably should strongly consider doing the cash out mortgage refinance in the near future.
If the Fed raises rates two or three more times this year as they have indicated, this could put a cash out mortgage refinance out of reach for many homeowners.