Cash-Out Refinance - The Current Landscape

Cash out refinance

Key takeaways

  • Interest rates are rising, and will be rising more, making many refinance options less attractive now.

  • There are some strategies you can use to improve your costs.

  • A home equity agreement is an increasingly popular alternative to a typical refinance.

There are many times when refinancing your mortgage is wise. You can reduce the timeline to pay it off, and there’s the possibility of saving a lot of money as well.

There’s a problem: mortgage rates are on the rise. And the Federal Reserve says it intends to raise them even more this year. At the time of this writing, 30-year fixed mortgages are in the 6% range, depending on a borrower’s credit score and where they live.

Ways to learn if a refinance is good for you right now

Credit and Income: When you apply for a mortgage, a lender will look up your credit score and your monthly income. Then they’ll decide what interest rate to offer you. If your credit score went way up, or your income rose, you may be in a position to receive a more favorable rate. For example, if you had a 600 credit score when you first got your mortgage and now have a 750 score, that’s very good news which can help you pay less.

PMI: Private mortgage insurance (PMI) is a fee you have to pay on a typical mortgage if you have less than 20% equity in your home. Because PMI costs between 0.2% and 2% of the loan amount each year, removing it can potentially save you a lot of money. Balancing a now-higher interest rate for a refinance might then make sense.

Here’s a calculator to help you run the numbers and decide if refinancing is a good option for you. If the math isn’t working, it’s a strong play to hold on to your equity.

A home equity agreement may be a good option

A home equity agreement (HEA) provides an alternative financing option for homeowners with home equity and limited liquidity.

Here’s how it works: the homeowner sells a percentage of equity to the HEA provider. In return, they provide the homeowner with cash proceeds to use (mostly) as they see fit. Examples include:

  • Repaying debt (vehicle loans, credit cards, etc.)
  • Financing your children’s college tuition
  • Making home improvements

The difference between cash-out refinancing, home equity loans (HEL) or home equity lines of credit (HELOC) is that a HEA is not a loan. You don’t make monthly payments and you don’t pay interest. Instead, you benefit from receiving your cash up front, and flexibility in how you end the HEA.

Curious about HEAs?

A thorough understanding of the terms of a HEA is important for making an informed financial decision. Our Frequently asked Questions page will give you answers you may have regarding costs, the term of the agreement, and more.

If you’re curious about a HEA through Unlock Technologies, you can enter a few details in our online form and see if it’s right for you.

John Scott

Unlock technologies staff writer