Cash Out Refinance- Is There Wind in Our Sails?

Bottom line upfront: The wind has been at our sails for over a year. Now its time to grab an oar and start rowing.

By this time everyone is well aware that drastic measures were taken across the board at the beginning of the coronavirus pandemic in 2020. Specifically for real estate and mortgage that meant that the Federal Reserve took drastic action in buying mortgage-backed securities and treasuries in the amount of $120 billion per month, every month for well over a year. This led to the lowest interest rates in all recorded history (low 2s), the highest amount of loan volume every funded in one calendar year (more than $4 Trillion), and surging home prices across the country that generated the most home equity over. While this was able to put some wind in the sails of our economy to avoid a complete catastrophe, there is a consequence to those decisions which we now must address. Everyone grab an oar it’s time to start rowing.

Moving forward will require some working together and seeing it through alongside one another. Just over the last few weeks the Federal Reserve has announced their first interest rate hike of at least six (or seven) that are due before the end of 2022. Additionally, they will begin to unwind their balance sheet which means they’re going to transfer back risk onto the open market that had presently been shared up until this point. (Remember that $120 Billion per month from the previous paragraph? Yup, all that money) The announcement that these functions were going to occur quicker than initially expected has shocked the mortgage rate market in the last 30 days with interest rates going up on average more than 1% compared to where they were at the beginning of March 2022.

This initially has created some price shock for aspiring homebuyers who were qualified at lower rates just a few weeks ago, but have yet to find their dream home and close escrow. One of the ways you can secure your future purchase is to get your mortgage loan qualification updated today to properly reflect the monthly cost of your proposed mortgage based on today’s new rates. Do this as quickly as possible so you can continue home shopping with confidence.

For current homeowners who are looking to take advantage of historically high home equity, there will be no better window for a cash out refinance in 2022 than the months of April/May/June, as we are expecting rates to continue increasing through the remainder of the year (regardless of geopolitical issues or unforeseen circumstances). Complete a short online loan application, upload your supporting documents, and be ready to move swiftly through the cash out refinance process while this window is open.

“So what’s the rush?”

The reason we come to this conclusion is because the Federal Reserve has been abundantly clear in their messaging that they have to dramatically fight inflation which has run out of their control for too long and too high. It even appears analysts have been taken aback because the inflation numbers have not yet peaked even though month after month they are estimating that we have arrived at “the peak”. How many more months will they say that before it becomes true? We actually don’t know but it could be off on the horizon at least two to three more months. With a typical refinance process taking anywhere from 21 to 30 days, it is advisable that you begin your cash out refinance now.

As we look forward, increasing interest rates will put pressure on prices of homes for sale, which then will impact comparables at time of appraisal for refinances too. Simply stated, home values could flatten out very quickly and it is advisable that you take advantage of your high home equity while you still have it. By the way – There is NO evidence of an impending crash, as there is no data to support that. However, it is advisable that you be proactive in your financial planning today and take into consideration the next three to five years of what your financial life should look like.

Eventually we will get to a point in history where rates could come back down again. The prospect of that being in the next year or two is somewhat likely but leaning towards unlikely. The result of decreasing mortgage rates will only come at the hands of inflation coming under control, a normalization of house prices, and workforce real wages stabilizing rather than declining. Until we get to that point the window we are currently living in will be the best time for homeowners in San Diego to take advantage of the home equity that has become available as a result of the Fed’s initial policy that began in 2020.  Homeowners need to be very strategic in how they structure their mortgage financing while keeping the next three to five years in clear view.  Today is a time to look at all of your debt, all of your budget, and weigh the benefits of reducing your monthly outflow, and creating consistency for your personal finances-by using your mortgage to leverage and take advantage in your favor.

We are here to help, oars in hand, let’s get rowing.

If you would like to speak with our team about your home loan questions, please complete the form below. You can also start your loan application online by APPLYING NOW.

Rates & Fees Disclosure:
^‡ The payment on a $300,000 30-year fixed-rate VA loan at 3.000% with a 80% loan-to-value ratio is $1,292.01 with 0 (zero) origination points due at closing. The annual percentage rate (APR) is 3.235%. Payment does not include tax and insurance premium impounds. The actual payment amount will be greater. By refinancing your existing loan, the total finance charges may be higher over the life of the loan. Some state and county maximum loan amount restrictions may apply. Appraisal fee of $600, Processing Fee of $895, Underwriting Fee of $795 included in APR calculations with borrower paying 0 (zero) loan origination points.

^‡ Based on Mortgage Heroes internal data.