Low Refi Mortgage Rates Make This a Great Time to Debt Consolidation

Homeowners have another opportunity to take advantage of the sale of mortgage rates these days as various economic agents and the decision of the Federal Housing Finance Agency to abolish the refinancing fee come together to push the mortgage market back.

One strategy to take advantage of these terms could be to refinance your mortgage loan and cover any equity debt you have – such as a equity loan or a mortgage credit line (new HELOC). Here’s why this could save you money in the long run.

Why Consider Consolidating Your Equity and Mortgages?

Mortgage rates are generally lower than those of household equity products and with mortgage rates ready to fall even further in the short term, it is a great opportunity to reduce debt with a higher interest rate.

For now, the US Federal Reserve’s policy is aimed at promoting low interest rates, but most experts expect this to change as COVID continues to recover.

“When the Fed starts raising interest rates, the first interest rate to go up is the home equity rate,” said Melissa Cohn, a mortgage executive at William Raveis Mortgage. “Your mortgage has only one way to go: up.”

Mortgage lending and credit lines are more prone to market fluctuations because these products tend to have adjustable interest rates, while primary mortgages more often have a fixed interest rate at a single interest rate over the course of the loan.

“We are in the final stages of this amazing environment of low interest rates,” Cohn said, so borrowers with adjustable interest rates only have a matter of time before their payments begin to rise. “Would not you like to refinance your entire loan in a mortgage where the interest rate is safe?”

How does the end of refinancing commission affect this consolidation strategy?

“It’s huge,” Cohn said. “You have the gold ring on top. “Not only did the bond yields fall, but also the cost of borrowing because we got rid of this commission.”

The refinancing fee of 0.5 percent of the loan balance has been imposed on most mortgage reviews since the onset of the COVID-19 pandemic. It applies to compliant loans held by Fannie Mae and Freddie Mac, with a capital balance of at least $ 125,000.

The end of the commission on August 1 will make it easier for borrowers to consolidate their debt, especially if it puts them on the wrong side of this $ 125,000 limit. The fee was paid by the lenders and many of them chose to pass on only a fraction of the cost to the borrowers, so it is not clear if anyone will see half the savings when they redefine.

How To Consolidate Your Debt

The easiest way to consolidate your mortgage and equity debt is to refinance your home mortgage and use the extra funds to repay the balance you have on HELOC or your loan.

Take a look at Bankrate Mortgage Refinancing Calculator to see how much you can save.

If you have enough equity in your home, you may be able to keep your credit line open even after you repay it, according to Cohn.

“The benefit of a home equity loan is that it gives you access to your equity in an instant,” he said. “You may not be asked to close it.”

For homeowners, a HELOC can be a great source of emergency cash if they incur unexpectedly significant costs, in addition to being a smart way to finance home improvement projects.

Keep in mind that if your lender requires you to close your HELOC, which they will probably do as part of a refinancing, you will no longer have access to this equity unless you choose to open another line of credit later.

Conclusion

Mortgage rates are falling again and while the lows will not last forever, the trend is for borrowers to take advantage of renewed opportunities.

If you have not already refinanced or if you have a lot of mortgages in your home, now is the time to pinpoint the numbers and consider a lower interest rate and consolidate some debt.

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