Why Now Is The Time To Combine Your Mortgage And HELOC | news

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Homeowners have another opportunity to take advantage of the mortgage rate selloff these days, as a range of economic factors and the FHA’s decision to abolish the refinancing fee are collectively pushing the mortgage market down.

One strategy to capitalize on these conditions might be to refinance your mortgage and wrap any home equity debt you have – such as a home equity loan or home equity line of credit (HELOC) – into a new loan. This is why it can save you money in the long run.

Why You Should Consider Home Equity Consolidation And Mortgages

Mortgage interest rates are generally lower than real estate investment interest rates, and considering that mortgage rates will fall even more in the near future, this is a great chance to cut your debt with higher interest rates.

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

“When the Fed does start raising rates, the first thing that goes up is the home equity rate,” said Melissa Cohn, executive mortgage banker at William Raveis Mortgage. “Your home equity loan has only one way to grow: up.”

Home equity loans and lines of credit are more susceptible to market fluctuations because these products tend to have adjustable rates, while interest on primary mortgages is usually fixed at a flat rate over the life of the loan.

“We are in the final stages of this unusually low rate,” Kohn said, so it is only a matter of time before borrowers with adjustable rate loans start to rise in their payments. “Wouldn’t you like to refinance your entire loan into a mortgage where your rate is safe?”

How will the termination of payment of the refinancing commission affect this consolidation strategy?

“It’s huge,” Cohn said. – He has a gold ring on it. Not only did the yield on bonds decrease, but also the cost of borrowing, because we got rid of this commission. “

A refinancing fee of 0.5 percent of the loan balance has been charged on most mortgage overhauls since the start of the COVID-19 pandemic. It referred to related loans from Fannie Mae and Freddie Mac with a principal balance of at least $ 125,000.

The termination of commission payments on August 1 will make it easier for borrowers to consolidate debt, especially if it puts them on the wrong side of the $ 125,000 threshold. The commission was paid by lenders, and many of them chose to pass only part of the cost to borrowers, so it is unclear if anyone will see half a point of savings in refinancing.

How to consolidate your debt

The easiest way to consolidate your mortgage and home equity debt is to refinance your main cash-settled mortgage loan and use the additional funds to pay off the balance of your HELOC or loan.

Check out Bankrate’s Mortgage Refinancing Calculator to see how much you can save.

According to Cohn, if you have enough capital in your home, you can keep the line of credit open even after you pay it off.

“The advantage of a home equity loan is that it gives him access to equity capital at any time,” she said. “You may not need to close it.”

For homeowners, HELOC can be an excellent source of contingency cash if unexpected large expenses arise, and is also a smart way to finance home improvement projects.

Keep in mind that if your lender does require you to close your HELOC, which many are likely to do as part of a refinance, you will no longer have access to that capital unless you decide to open another line of credit later.

Bottom line

Mortgage rates are falling again, and while historic lows won’t last forever, the trend is giving borrowers new opportunities to generate profits.

If you haven’t refinanced yet or have multiple home mortgages, now is a great time to evaluate the numbers and think about lowering your interest rate and consolidating your debt.

(Visit Bankrate online at bankrate.com.)

© 2021 Bankrate.com… Distributed by Tribune Content Agency, LLC.

Copyright 2021 Tribune Content Agency.

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