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Despite Rising Rates, Experts Say Homeowners Still Have Refinance Options

By agedleadstore
Despite Rising Rates, Experts Say Homeowners Still Have Refinance Options Feature Image
3 minute read

Rising mortgage rates in recent weeks have curbed refinance activity. But experts believe there’s still some opportunity to tap into home equity.

In early January, mortgage rates reached as high as 3.75 percent. While they dipped a bit in the following weeks, to an average of 3.4 percent, market experts say the higher rates are here to stay.

Due to rising inflation, the Federal Reserve recently announced it will continue to take action in efforts to protect the economy — and at potentially even faster rates than initially anticipated.

Inflation has reached the highest increases since the early 1990s. Fed Chair Jerome Powell said is posing a significant threat to the job market.

Rising inflation combined with economic growth equals rising mortgage rates, experts say. Some say rates could reach 4 percent by the end of the year, while others predict even higher hikes.

Despite the news, experts have a message to homeowners who fear they may have missed their chance to refinance: There’s still time.

While some experts caution that opportunities may become scarce as we move through the year, they point to the levels of high equity that currently remain untapped.

In the third quarter of 2021, there was $9.4 trillion of untapped equity — the largest amount ever recorded, according to mortgage research firm Black Knight.

This totaled around $178,000 of available equity for the average homeowner.

As rates rise, the opportunity to cash out becomes more challenging, so experts say to make a move within the next few months — or at least before summer arrives.

Experts recommend two main ways to tap into home equity: a cash-out refinance or a home equity line of credit (HELOC).

With a cash-out refinance, homeowners can simultaneously take out a larger mortgage and lower their interest payments, then collect the difference in cash.

These funds are most commonly used for home improvements or to pay down debts.

A HELOC is a revolving line of credit, which acts similarly to a credit card but has much better interest rates.

This option was scarce during the pandemic, but is increasing in popularity in efforts to provide more options to borrowers.

Experts say with either option, the best rates and terms will be offered to those with higher credit scores and lower debt.

With this in mind, experts say that overall, a borrower’s personal financial situation and goals are the most important factor in a refinance decision, no matter where rates land.

Photo by Get Lost Mike from Pexels

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