Low mortgage refinancing rates make it a great time to consolidate debt


Homeowners have another opportunity to take advantage of a discount mortgage rate sale these days, as various economic factors and the Federal Housing Finance Agency’s decision to eliminate refinancing fees combine to push back the mortgage market.

One strategy for taking advantage of these terms might be to refinance your mortgage and incorporate any home equity debt you have – such as a home equity loan or home equity line of credit (HELOC) – into the new loan. Here’s why it could save you money in the long run.

Why you should consider consolidating your home equity and mortgage

Mortgage interest rates are generally lower than home equity products, and with mortgage rates on the verge of falling even more in the short term, this is a great opportunity to reduce your debt at higher interest rates. .

For now, the Federal Reserve’s policy is to promote low interest rates, but most experts expect this to change as the COVID recovery continues.

“When the Fed starts raising rates, the first rate to increase is the home equity rate,” said Melissa Cohn, executive mortgage banker at William Raveis Mortgage. “Your home equity loan has only one way to go: increase.

Home equity loans and lines of credit are more sensitive to market fluctuations as these products tend to have adjustable rates, while primary mortgages typically have their interest set at a single rate over the life of the loan.

“We are in the final innings of this extraordinary low rate environment,” Cohn said, so borrowers with variable rate loans have only a matter of time before their payments start to rise. “Wouldn’t you want to refinance your entire loan into a mortgage where your rate is secured?

How does the end of the refinancing fee affect this consolidation strategy?

“It’s huge,” Cohn said. “You have the gold ring over it. Not only have bond yields fallen, but the cost of borrowing has also fallen, as we got rid of these fees. “

A refinancing fee of 0.5% of the loan balance has been taken on most mortgage revisions since the start of the COVID-19 pandemic. It applied to conforming loans held by Fannie Mae and Freddie Mac, with a principal balance of at least $ 125,000.

The end of the fees on August 1 will make it easier for borrowers to consolidate their debt, especially if it would have put them on the wrong side of that $ 125,000 threshold. The fees were paid by the lenders, and many of them chose to pass only a portion of the costs on to the borrowers, so it’s not clear if anyone will see the half point in savings when ‘he will do it again.

How to consolidate your debt

The easiest way to consolidate your mortgage and mortgage debt is to refinance your primary mortgage and use the extra funds to pay off your HELOC or loan balance.

Check out Bankrate’s mortgage refinance calculator to see how much you could save.

If you have enough equity in your home, you may be able to keep the line of credit open even after you’ve paid it off, according to Cohn.

“The advantage of a home equity loan is that it gives it access to the equity in your home at all times,” she said. “You may not have to shut it down.”

For homeowners, a HELOC can be a great source of emergency cash if unexpected large expenses arise, in addition to being a smart way to fund home improvement projects.

Keep in mind that if your lender forces you to close your HELOC, which many will likely do with a refinance, you will no longer have access to that equity unless you choose to open another. line of credit later.

At the end of the line

Mortgage rates are falling again and while historic lows will not last forever, the trend offers borrowers new opportunities to take advantage of them.

If you haven’t refinanced yet, or have multiple mortgages on your home, now is a great time to calculate the numbers and consider looking for a lower interest rate and consolidating some debt.

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