Posted On December 24, 2019
Earlier this month, the Federal Open Market Committee (FOMC) voted to leave interest rates unchanged and will likely not move rates next year. This year, mortgage rates reacted by trending downward, incentivizing many homeowners to refinance their mortgage loans. According to data analytics firm, Black Knight, refinance volume climbed 132% in the third quarter of 2019, the highest level in three years. Of those refinances, 52% were cash-out refinances, where homeowners withdrew equity from their home. In 2019, homeowners withdrew $36 billion in home equity, a 12-year high.
Homeowners refinance their mortgage for many reasons.
Most financial professionals recommend waiting until you have at least a 20% equity cushion in your home before getting a cash-out refinance, so you are protected if your home’s value drops. When you get a cash-out refinance you originate a new mortgage loan equal to your existing mortgage balance plus the amount of cash you are withdrawing. Since you are originating a new loan, and average mortgage rates are low, you may also be able to get a lower mortgage rate than when you originally took out your loan.
You can use the cash you withdraw to pay off higher-interest debt, cover other costs, or reinvest in your home with a home repair or renovation project. Using a cash-out refinance to improve your home could increase the resale value of your home when it’s time to sell. If you’re renovating to improve your home’s value, avoid purely aesthetic upgrades. Functional upgrades like energy-efficient appliances or a new plumbing or HVAC system tend to get a greater return on investment.
If you have any questions about a cash-out refinance, or refinance of any kind, please let me know.