Dollars and Sense: How to Cash Out When Mortgage Rates Are Rising

The Paseo Financial Group

During the last year, home prices rose, making many Americans “house rich.” By the end of the third quarter 2021, borrowers had a record $9.4 trillion in tappable home equity collectively, or an average of $178,000 per borrower. When tapping those dollars, it is best to consider your whole financial picture, including current debt amount and associated interest rates, how much you are looking to borrow, available home equity line of credit (HELOC) vs. cash-out rate offerings, and the timeline for paying off the additional debt. But with 24% of all first-lien mortgages with an interest rate below 3%, cash-out refinancing gets less attractive because many borrowers would have to refinance to a higher rate than they currently have because interest rates are ticking up. Current interest rates, at the time of this writing, on a cash-out refinance up to 80% loan-to-value (LTV) and a 740 or greater FICO have risen drastically over the last couple of months and are currently at 3.75% with a 1-point origination fee. Another alternative would be if a homeowner had 50% or more of new-found equity in his or her home to refinance into a reverse mortgage, or what is called a home equity conversion mortgage (HECM).

HECMs, also known as reverse mortgage loans, help American homeowners ages 62 and older convert a portion of their home equity into tax-free cash. HECMs are insured by the Federal Housing Administration and allow seniors more financial security as well as the ability to age in place.

How Does It Work?

A reverse mortgage loan allows you to turn some of the equity in your home into cash to improve your lifestyle. You will continue to live in your home and retain ownership without monthly mortgage payments. The loan balance will be repaid when the last borrower or non-borrowing spouse has either left the home or does not otherwise comply with the loan terms. The amount you receive is based on the age of the youngest borrower or eligible borrowing spouse, appraised value of the home, and the current interest rate.

Please Note

The borrower must continue to pay property taxes, homeowner’s insurance, and home maintenance costs.

Qualifications include:

* You must be 62 or older (a non-borrowing spouse may be under 62).

* Live in your home (must be principal residence).

* The borrower must own the home.

* The borrower must meet financial requirements of the HECM program.

If you have questions concerning refinancing your home, call Melanie Sedam of The Home Loan Pros at 520-829-5219, #2. For questions concerning the value of your home, call Douglas Sedam of SBRanchRealty at 520-829-5219, #1.