SAN MATEO, CALIF./ OCTOBER 11, 2018 (STL.News)
As home prices continue to rise around the country, home equity levels have reached historical levels. Yet many homeowners are not sure about refinancing their mortgages and obtaining cash from the equity. To help them assess the benefit of a cash-out refinance, Bills.com is outlining five key considerations.
According to a recent report, home equity grew $635 billion in the first two quarters of 2018. Tappable equity surpassed $6 trillion for the first time in the second quarter, and almost three times as much tappable equity exists today as it did at the bottom of the housing market in 2012.
However, homeowners are showing a reluctance to take advantage of these record levels and take cash out of their equity, says Daniel Cohen, managing editor of Bills.com, a resource to help homeowners better understand their loan options and make smarter mortgage decisions. Part of the reason for the slowdown in cash-out refinances is rising interest rates, he says. “Many homeowners still can benefit from a cash-out refinance or other home equity loan alternatives,” he explains.
Bills.com turned to Jason Le, a finance professional in the San Francisco Bay Area with 16 years of experience in the mortgage and real estate industries, for expert input. “The best thing a homeowner can do is to stay informed, as the mortgage market is constantly changing.” These considerations can help homeowners determine if they should be taking out cash from their homes or continuing to build up home equity.” Le suggests homeowners review these points to help determine if a cash-out refinance is right for them.
- Reassess your mortgage every year. Look at the current interest rate market and your home value. Even if interest rates are rising, check to see if a 15-year mortgage or an Adjustable Rate Mortgage might be a better fit for your situation. Use a cash-out refinance calculator to check monthly payment scenarios. Perhaps an improved financial situation or new mortgage product will allow you to qualify for a cash-out refinance you could not have obtained previously.
Carefully evaluate the benefit of a cash-out refinance. Some of the top reasons to use home equity are to obtain cash for debt consolidation and elimination, home improvement expenses, and to acquire a rental income property. If you believe you would see a real benefit, it may be wise to take advantage of it. “Interest rates on home equity loans still are low, making home equity the cheapest money you can find,” says Le.
Consider extended uses of home equity proceeds. Proceeds from a cash-out refinance can also help children, Le points out. Tapping into home equity could allow parents to help pay off student loans or help their young-adult children with a down payment for a house.
Review your emergency fund. Most experts recommend maintaining six to nine months of basic living expenses in an emergency fund. If you don’t have that in place, a cash-out refinance or other home equity loan product may help.
Calculate the new payments. A cash-out refinance doesn’t necessarily mean high payments, says Le. Depending on the term for which you refinance your mortgage, your payment may remain the same, or may even be lower. Many mortgage terms and options exist. If using the proceeds for debt consolidation and elimination, it is important to incorporate the additional financial benefits you will receive from paying off your debt.
“A cash-out refinance can be a great financial tool for some homeowners who have experienced significant increases in their home equity,” says Le. “Carefully weighing how you use the proceeds to better your overall financial health will help decide whether it’s the right decision for you.”
Bills.com is a subsidiary of Freedom Financial Network, LLC (FFN), a family of companies whose products and services provide innovative solutions that empower people to live healthier financial lives. The site offers information, expertise and tools – including the Bills.com debt relief calculator – to help consumers achieve mortgage, debt, credit and personal financial wellness. Bills.com expertise in the mortgage industry helps homeowners better understand their loan options and make smarter mortgage decisions. Bills.com expertise in the mortgage industry helps homeowners better understand their loan options and make smarter mortgage decisions.
Headquartered in San Mateo, California, FFN also operates an office in Tempe, Arizona, and employs more than 2,200. The company has been voted one of the best places to work in both the San Francisco Bay area and the Phoenix area for several years.