Should I Move or Refinance?

 

Should I Move or Refinance?

The level of equity homeowners have is at an all-time high. According to the U.S. Census, over 38% of owner-occupied homes are owned free and clear, meaning they don’t have a mortgage. Those with a mortgage are seeing their equity skyrocket too. Every time real estate values increase, homeowners get a dollar-for-dollar gain in their home equity.

According to the first-quarter 2021 U.S. Home Equity Report from ATTOM Data Solutions:

“17.8 million residential properties in the United States were considered equity-rich, meaning that the combined estimated amount of loans secured by those properties was 50 percent or less of their estimated market value.

The count of equity-rich properties in the first quarter of 2021 represented 31.9 percent, or about one in three, of the 55.8 million mortgaged homes in the United States. That was up from 30.2 percent in the fourth quarter of 2020, 28.3 percent in the third quarter and 26.5 percent in the first quarter of 2020.”

This surge in home equity has given most homeowners the opportunity to use that equity in one of two ways:

1. Refinance to cash out some of the equity or lower their current payment
2. Move to a home that better fits their current needs

Let’s break down the possibilities.

1. Refinance

An abundance of equity and record-low mortgage rates can make refinancing a home very easy. Some homeowners choose to refinance so they can lower their payments. Others convert a portion of the equity to cash while keeping their monthly payment the same.

There are many homeowners who could take advantage of lower rates and higher levels of equity, but they haven’t yet. According to an Economic & Housing Research Note from earlier this month, there were over five million homeowners with a loan funded by Freddie Mac who would benefit by refinancing their loan. As of January 2021, there were:

• 452,122 loans with an average mortgage rate of 6.17%
• 1,027,834 loans with an average mortgage rate of 4.39%
• 3,687,780 loans with an average mortgage rate of 4.21%

With mortgage rates currently hovering around 3%, any of these homeowners would benefit from refinancing. They could lower their payments by hundreds of dollars per month or cash out large sums of equity while keeping their monthly payment the same.

Example:

If a homeowner has a $200,000 fixed-rate mortgage with a 6% interest rate and refinances that loan to a 3% interest rate, their monthly mortgage payment (principal and interest) will go from $1,199 per month to $843 per month – a savings of $356 a month, or $4,272 each year.

On the other hand, if they keep their mortgage payment the same, they could cash out a significant amount of their equity.

2. Move into your dream home

The past year prompted many households to redefine what a dream home really means, and it’s something different to everyone. Those who have a high mortgage rate could use their equity as a down payment and perhaps buy their next home without significantly raising their mortgage payment.

Example:

Suppose a person bought a house for $216,000 at the height of the market in 2006. (The median home price in May of 2006). If they put 10% down and took out a mortgage of $194,400 at 6.41% (the average rate in 2006), the monthly mortgage payment (principal and interest) would have been $1,217.

According to the National Association of Realtors (NAR), a typical single-family home has grown in value by approximately $150,000 over the last fifteen years. That means the $216,000 house would be worth about $366,000 today.

After deducting selling expenses, they would be left with about $130,000 ($150,000 minus approximately $20,000 in selling expenses).

A seller could take that equity and use it as a down payment on a new house. Let’s assume they purchased a home for $450,000 (roughly $80,000 more than the value of their current home). If they put the $130,000 down, they could take out a mortgage of $320,000 with a 3% interest rate. The monthly mortgage payment (principal and interest) would be $1,349. Therefore, they could buy a home worth $80,000 more than the one they have today and only spend an extra $132 per month.

Bottom Line

Whether you’re refinancing your house or moving to a new home, your current mortgage rate and your level of equity are crucial in your decision-making process. Look at your mortgage documentation to find out your interest rate, and then let’s connect to determine the potential equity in your home. You may be surprised by the opportunities you have.

Should We Fear the Surge in Cash-Out Refinances?

 

Should We Fear the Surge in Cash-Out Refinances?

Freddie Mac recently released their Quarterly Refinance Statistics report which covers refinances through 2020. The report explains that the dollar amount of cash-out refinances was greater in 2020 than in recent years. A cash-out refinance, as defined by Investopia, is:

“a mortgage refinancing option in which an old mortgage is replaced for a new one with a larger amount than owed on the previously existing loan, helping borrowers use their home mortgage to get some cash.”

The Freddie Mac report led to articles like the one published by The Real Deal titled, House or ATM? Cash-Out Refinances Spiked in 2020, which reports:

“Americans treated their homes like ATMs last year, withdrawing $152.7 billion amid a cash-out refinancing spree not seen since before the 2008 financial crisis.”

Whenever you combine the terms “spiked,” “homes like ATMs,” and “financial crisis,” it conjures up memories of the housing crash we experienced in 2008.

However, that comparison is invalid for three reasons:

1. Americans are sitting on much more home equity today.

Mortgage data giant Black Knight just issued information on the amount of tappable equity U.S. homeowners with a mortgage have. Tappable equity is the amount of equity available for homeowners to use and still have 20% equity in their home. Here’s a graph showing the findings from their report:In 2006, directly before the crash, tappable home equity in the U.S. topped out at $4.6 trillion. Today, that number is $7.3 trillion.

As Black Knight explains:

“At year’s end, some 46 million homeowners held a total $7.3 trillion in tappable equity, the largest amount ever recorded...That’s an increase of more than $1.1 trillion (+18%) since the end of 2019, the largest percentage gain since 2013 and – you guessed it – the largest dollar value gain in history, to boot. All in all, it works out to roughly $158,000 on average per homeowner with tappable equity, up nearly $19,000 from the end of 2019.”

2. Homeowners cashed-out a much smaller amount this time.

In 2006, Americans cashed-out a total of $321 billion. In 2020, that number was less than half, totaling $153 billion. The $321 billion made up 7% of the total tappable equity in the country in 2006. On the other hand, the $153 billion made up only 2% of the total tappable equity last year.

3. Fewer homeowners tapped their equity in 2020 than in 2006.

Freddie Mac reports that 89% of refinances in 2006 were cash-out refinances. Last year, that number was less than half at 33%. As a percentage of those who refinanced, many more Americans lowered their equity position fifteen years ago as compared to last year.

Bottom Line

It’s true that many Americans liquidated a portion of the equity in their homes last year for various reasons. However, less than half of them tapped their equity compared to 2006, and they cashed-out less than one-third of that available equity. Today’s cash-out refinance situation bears no resemblance to the situation that preceded the housing crash.

Home Mortgage Rates by Decade

 

Home Mortgage Rates by Decade [INFOGRAPHIC]

Some Highlights

• Mortgage interest rates have dropped considerably over the past year, and compared to what we’ve seen in recent decades, it’s a great time to buy a home.
• Locking in a low rate today could save you thousands of dollars over the lifetime of your home loan, but these low rates may not last forever.
• If you’re in a position to buy a home, let’s connect to determine your best move in today’s housing market while interest rates are still in your favor.

Is Now a Good Time to Move?

 

Is Now a Good Time to Move?

How long have you lived in your current home? If it’s been a while, you may be thinking about moving. According to the latest Profile of Home Buyers and Sellers by the National Association of Realtors (NAR), in 2019, homeowners were living in their homes for an average of 10 years. That’s a long time to time to be in one place, considering the average length of time homeowners used to stay put hovered closer to 6 years.

With today’s changing homebuyer needs, especially given how the current health crisis has altered our daily lifestyles, many homeowners are reconsidering where they’re at and thinking about moving to a home with more space for their families. Here’s why it might be a great time to make that happen.

The real estate market has changed in many ways over the past 10 years, and current homeowners are earning much more equity today than they used to have. According to CoreLogic, in the first quarter of 2020 alone, the average homeowner gained approximately $9,600 in equity. If you’re considering selling your house right now, you may have accumulated more equity to put toward a move than you realize.

Dialing back 10 years, many homeowners also locked in a fairly low mortgage rate. In 2010, the average rate was only 4.09%. This motivated homeowners to stay in their houses longer than usual to keep their rate low, rather than moving. Just last Thursday, however, average mortgage rates hit a new historic low at 2.86%. Sam Khater, Chief Economist at Freddie Mac explains:

“Mortgage rates have hit another record low due to a late summer slowdown in the economic recovery…These low rates have ignited robust purchase demand activity, which is up twenty-five percent from a year ago and has been growing at double digit rates for four consecutive months.”

Ten years ago, we couldn’t have imagined a mortgage rate under 3%. Looking at the math today, making a move into a new home and locking in a significantly lower rate than you have now could save you greatly on a monthly basis, and over the life of your loan (See chart below):As the example shows, you can save a substantial amount every month if you qualify for today’s low mortgage rate, and the savings can really add up over the life of a 30-year fixed-rate loan.

Bottom Line

As a homeowner, you have a huge opportunity to move up right now. Whether you want to save more each month or get more home for your money based on your family’s changing needs, it’s a great time to connect to discuss the market in our area. Buyers are actively looking for more homes to buy, and you can win big by making a move if the time is right for you.

Mortgage Rates & Payments by Decade [INFOGRAPHIC]

 

Mortgage Rates & Payments by Decade [INFOGRAPHIC]

Some Highlights

• Sometimes it helps to see the dollars and cents you’ll save when you purchase a home while mortgage rates are low.
• Today’s low rates mean it’s less expensive to borrow money, so the savings over the life of your loan is significant.
• Let’s connect to determine the best way to position your family for a financially-savvy move in today’s market.

Mortgage Rates Fall Below 3%

Mortgage Rates Fall Below 3% [INFOGRAPHIC]

Some Highlights

• Mortgage rates hit another all-time low, falling below 3% this week.
• If you’re ready to buy a home, now is a great time to truly get more for your money at this historic moment.
• Let’s connect today to determine your best next steps toward homeownership.

Is Now a Good Time to Refinance My Home?

Is Now a Good Time to Refinance My Home?

With interest rates hitting all-time lows over the past few weeks, many homeowners are opting to refinance. To decide if refinancing your home is the best option for you and your family, start by asking yourself these questions:

Why do you want to refinance?

There are many reasons to refinance, but here are three of the most common ones:

1. Lower Your Interest Rate and Payment: This is the most popular reason. Is your current interest rate higher than what’s available today? If so, it might be worth seeing if you can take advantage of the current lower rates.

2. Shorten the Term of Your Loan: If you have a 30-year loan, it may be advantageous to change it to a 15 or 20-year loan to pay off your mortgage sooner rather than later.

3. Cash-Out Refinance: You might have enough equity to cash out and invest in something else, like your children’s education, a business venture, an investment property, or simply to increase your cash reserve.

Once you know why you might want to refinance, ask yourself the next question:

How much is it going to cost?

There are fees and closing costs involved in refinancing, and The Lenders Network explains:

“As an example, let’s say your mortgage has a balance of $200,000. If you were to refinance that loan into a new loan, total closing costs would run between 2%-4% of the loan amount. You can expect to pay between $4,000 to $8,000 to refinance this loan.”

They also explain that there are options for no-cost refinance loans, but be on the lookout:

“A no-cost refinance loan is when the lender pays the closing costs for the borrower. However, you should be aware that the lender makes up this money from other aspects of the mortgage. Usually charging a slightly higher interest rate so they can make the money back.”

Keep in mind that, given the current market conditions and how favorable they are for refinancing, it can take a little longer to execute the process today. This is because many other homeowners are going this route as well. As Todd Teta, Chief Officer at ATTOM Data Solutions notes about recent mortgage activity:  

“Refinancing largely drove the trend, with more than twice as many homeowners trading in higher-interest mortgages for cheaper ones than in the same period of 2018.”

Clearly, refinancing has been on the rise lately. If you’re comfortable with the up-front cost and a potential waiting period due to the high volume of requests, then ask yourself one more question:

Is it worth it? 

To answer this one, do the math. Will it help you save money? How much longer do you need to own your home to break even? Will your current home meet your needs down the road? If you plan to stay for a few years, then maybe refinancing is your best move.

If, however, your current home doesn’t fulfill your needs for the next few years, you might want to consider using your equity for a down payment on a new home instead. You’ll still get a lower interest rate than the one you have on your current house, and with the equity you’ve already built, you can finally purchase the home you’ve been waiting for.

Bottom Line

Today, more than ever, it’s important to start working with a trusted real estate advisor. Whether you connect by phone or video chat, a real estate professional can help you understand how to safely navigate the housing market so that you can prioritize the health of your family without having to bring your plans to a standstill. Whether you’re looking to refinance, buy, or sell, a trusted advisor knows the best protocol as well as the optimal resources and lenders to help you through the process in this fast-paced world that’s changing every day.