Withdrawal rollovers hit $1.2 trillion in 2021. Here's why now is the time to sign up for one
Withdrawal rollovers hit .2 trillion in 2021. Here’s why now is the time to sign up for one
A mum and dad with their baby sitting on the sunny lawn in front of their house.

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You may want to do a cash-out refinance before mortgage rates go up.


Key points

  • A cash-out refinance allows you to borrow more than the remaining balance of your mortgage.
  • Last year many borrowers rushed to refinance, and you might want to do the same.

Many people refinance their mortgage in an effort to lower their monthly payments. But in some cases, refinancing your mortgage could leave you with a comparable or even higher monthly mortgage payment, and that’s not necessarily a bad thing.

If you refinance in cash, you could find yourself in this situation. In effect, a cash-out refinance allows you to borrow more than the remaining balance of your mortgage loan, while giving you access to a sum of money that you can use for any purpose.

Last year, cash refinances reached $1.2 trillion, reports Black Knight. This is the highest level on record since 2005, and represents a 20% increase over the previous year.

Given that refinance rates have been very competitive throughout 2021, that’s not too surprising. But as refinance rates start 2022 higher, it could still be beneficial to do a cash refinance. Here’s why.

Tap That Equity While You Can

Right now, homeowners are sitting on record levels of equity in their property due to soaring home values. You may have more options for withdrawing money from your home than you would at any other time.

Imagine you owe $200,000 on your mortgage and your home is normally worth $250,000. If your home is now worth $330,000 because property values ​​have gone up nationwide, that gives you the flexibility to borrow more if you need to.

In 2021, owners leveraged $275 billion in real estate capital. In the fourth quarter alone, more than one million homeowners took home $80 billion. Despite this activity, equity available to mortgage borrowers increased by $446 billion in the fourth quarter. And that means that many homeowners are likely to benefit from a generous cash refinance today.

Borrow carefully

The advantage of doing a cash-out refinance is that it is a fairly easy and inexpensive way to borrow money. Even though refinance rates are higher than they were in 2021, they’re still lower than the rates you’ll typically see for alternatives like home equity loans and personal loans.

That said, if you’re considering cash-in refinancing, proceed with caution. The more money you take out of your home, the higher the mortgage payment you will have to make. Falling behind on these payments could put you at risk of losing your home to foreclosure. Even if the situation does not worsen, late mortgage payments could cause serious damage to credit rating.

Still, if you have a specific need for cash — for example, you want to pay off a pile of credit card debt, renovate your home, or start a business — then now’s a good time to consider cash refinancing. Once home values ​​begin to fall nationwide, homeowners of all stripes will have less equity to tap into. If you want to maximize this borrowing opportunity, now is the time to do so while home values ​​are still very high.

A Historic Opportunity to Save Potentially Thousands of Dollars on Your Mortgage

Chances are, interest rates won’t stay at multi-decade lows much longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger on buying a new home.

Ascent’s in-house mortgage expert recommends this company find a low rate – and in fact, he’s used them himself to refi (twice!). Click here to learn more and see your rate. While this does not influence our product opinions, we do receive compensation from partners whose offers appear here. We are by your side, always. See The Ascent’s full announcer disclosure here.

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