Homeowners Now Choose Cash-Out Refis Over HELOCs
Homeowners flock to cash-out refinances as mortgage rates climb; today’s mortgage rates and the 5-day trend; and, why Millennials pay more for homes than anyone else.
Homeowners Turning Away From HELOCS
U.S. homeowners doing more cash-out refinances and opening fewer new HELOCs.
According to mortgage data firm Black Knight’s latest Mortgage Monitor report, U.S. homeowners hold a collective $5.8 trillion in home equity, the result of six consecutive years of rising home valuations.
Homeowners are sitting on more cash than during any time in history, and they’re working to diversify. Black Knight data shows cash out refis accounting for seventy percent of last quarter’s total mortgage refinances, for a total equity extraction of $63 billion.
Homeowners accepted an average mortgage rate increase of 70 basis points (0.70 percentage points) in order to cash out, too, which means that refinancing households are cashing out despite a rise in mortgage rates.
Homeowners do cash out refinances for multiple reasons:
- Fund savings and retirement accounts
- Make home improvements and home repairs
- Pay off lingering student loans and credit card debt
Homeowners also use cash out refis to diversify.
Home equity is an illiquid asset and can represent an outsized portion of a person’s net worth. Cash out refinances convert that illiquid asset to cash.
It’s notable that homeowner are choosing cash out refinances over home equity lines of credit (HELOC), though. Until recently, consumers preferred HELOCs — rates were lower and more stable.
HELOC interest rates are based on Prime Rate, which is based on the Fed Funds Rate, and the Federal Reserve voted to raise the Fed Funds Rate 150 basis points since two years ago.Forecasts call for another 100 basis point increase before 2020, too,
All of this makes HELOCs more expensive as compared to recent years. That doesn’t make HELOCs better or worse than cash out refinances, though — they’re just different.
There are reasons to choose a cash out refinance for your home, and reasons to choose a HELOC. A loan officer can help you make the better choice.
Today’s Mortgage Rates & Interest Rate Trends
Mortgage rates are rising to start the week.
Rates are higher for all fixed-rate and adjustable-rate mortgages, across all loan types including FHA, VA, and conventional.
A quick look at today’s mortgage rates:
- Conforming mortgages: Higher
- FHA mortgages: Higher
- VA mortgages: Higher
- USDA mortgages: Higher
- Jumbo mortgages: Higher
Mortgage rates are personalized based on more than a dozen factors including your loan size, credit score, and type of home.
Your choice in lenders matter, too.
Mortgage lenders get different pricing on different days. The lender with the lowest mortgage rates today might not be the lender with the lowest mortgage rates tomorrow.
For the best mortgage rates, then, research rates with two or more lenders and find your preferred combination of rates, fees, and service.
Get Today’s Mortgage Rates
How Millennial Choose Real Estate Agents
Millennial home buyers pay more for homes relative to MLS listing price than any age demographics.
Data from the National Association of REALTORS® 2018 Home Buyer and Seller Generational Trends report shows that Millennial home buyers pay closest to a home’s list price relative to all other age cohorts.
It’s a counter-intuitive finding because home buyers aged 37 use a full-range of tools for buying homes, and, in theory, access more information than other buyers.
There’s a reason Millennials pay more, though — because of how they choose real estate representation.
The NAR report shows that Millennials value an agent’s negotiation skills above all else, and assign little importance to an agent’s knowledge of an area or experience in business.
Millennials pay more because their agents lack the knowledge and experience to negotiate down a deal.
Home buyers can learn a lot from the internet, but not everything. It’s best to surround yourself, then, with professionals who are skilled, experienced, and ready to work on your behalf.
The money you save will be your own.