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Cash Out Refinancing: Is Now the Time?

August 25, 2016 By Mark Hunke

Just a few short weeks ago, traders and real estate experts predicted that the Federal Reserve would raise the benchmark mortgage rate, which would affect mortgage rates across the country. However, thanks to events like Brexit and analysts’ failed GDP forecast, this increase isn’t likely. Now may very well be the time for people who purchased homes with higher interest rates to think about cash out refinancing.

What Is Cash Out Refinancing?

Cash out refinancing works like any other type of refinance. Essentially, a homeowner takes out a brand new home loan to pay off his or her existing home loan. In most cases, this happens when a homeowner has access to a lower interest rate and therefore lower monthly payments and less interest paid over time. The cash-out option occurs when a homeowner has equity in his or her home at the time of the refinance. He or she then takes out a new mortgage that is larger than the payoff for the existing mortgage, which provides access to the leftover cash. This is common among homeowners who want to consolidate debt or repair and remodel their homes.

cash out refinancingWhy You Should Be Thinking About It Now

According to mortgage finance agency Freddie Mac, 30-year mortgage rates fell early in August to almost a three year low. Benchmark treasury yields played a role in this fall, as did an inaccurate prediction regarding the GDP. Analysts polled by Reuters had predicted that the GDP would grow 2.6% in the second quarter, but the actual growth was only 1.2% – far lower than predicted. This has sparked some concern on Wall Street, and it means that the Federal Reserve will likely leave benchmark mortgage rates unchanged through the end of the year. Now is a great time to refinance, especially to a 30-year fixed mortgage, which offers a current refinance rate of 3.41% to those who are highly qualified.

Using the Cash Wisely

While there’s no denying that it’s a great time to refinance and even consider cash out refinancing, it’s important to use the cash wisely so it can serve you well in the future. If you choose the cash-out option, consider using the funds to pay off some of your high-interest debt. This can save you thousands of dollars in interest charges, which is money you can use elsewhere to expand your wealth. Because home values are continuing to increase in most US markets, you might also consider using the funds to improve or repair your home. Choose projects that will increase the value of your home significantly, and your cash out refinance will certainly pay off in the future in terms of home value and equity.

If you’ve been waiting for the perfect time to refinance your home, with or without the cash out option, now is the time to act. Mortgage rates are at a near three-year low, and with the instability in today’s global and local economies, it’s a wise idea to take advantage of these lower interest rates.

Filed Under: Financing

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