In the past weeks we have seen ups and downs in terms of the refinancing activity of many homeowners as there are some men and women who are in a position to take advantage of rates that are currently available to help new homeowners or existing homeowners find more affordability. Understandably, refinancing was used in the past as a way to get a lower rate and potentially lower monthly mortgage payment on a home loan, but there are issues surrounding the housing market at the present time that may make this opportunity unavailable. Furthermore, there are homeowners who have used options like cash-out refinancing as the way to meet certain financial obligations and their life like debt consolidation needs or in some cases homeowners have used this particular type of refinancing to pay for college tuition costs, but again, this was during a time where problems in the housing market didn’t cause so much strain for homeowners.
Understandably though, some homeowners have either been unwilling or unable to refinance, but the Mortgage Bankers Association reported for the week ending on July 15, refinance applications were up, yet this has not been a continual trend throughout the summer. Despite the fact that rates are low on home loans, there are reports that home sales are up and down, home starts have seen a great deal of volatility in some areas, and again, refinancing has not stayed consistent.
Yet, for homeowners who are looking at refinancing with a cash-out option to meet certain payment obligations, there are some aspects of this particular type of refinancing that need to be explored. As homeowners see personal debts increase in some areas, those who may have equity in their home feel that refinancing can not only benefit them through allowing them to pay off these debts, but they can ideally get a more affordable rate and payment on their home loan in the process.
Negative equity is a hindrance for some, but in cases where homeowners may be able to refinance due to the fact that their home has not seen a depreciation in value, financial advisers want homeowners to be cautious about jumping into the refinancing arena despite the fact that rates on home loans remain relatively low. Some homeowners may refinance in order to get out of debt faster or get a lower payment, and in the process get cash back from equity they have in their home to pay off credit cards, personal loans, or other forms of debt, but homeowners must remember that this particular use of refinancing could create problems down the road.
Essentially, homeowners are attaching unsecured debts to a secured home loan when they use cash-out refinancing and if this higher mortgage obligation cannot be paid, homeowners may stand the risk of losing their home. If homeowners are in a good financial position, can afford the costs that come with refinancing, have equity built in their home and a good credit score, they may qualify for a cash-out refinancing opportunity but this does not necessarily mean they should take it.
If debt has become a problem for a homeowner to the extent where they are considering using their equity to pay off what they owe, it may be time to consult a nonprofit credit counselor or financial adviser so that alternative debt repayment plans can be explored, rather than refinancing in order to receive cash back. However, if homeowners feel that cash-out refinancing will be best for them, and this is a very personal decision that will require a great deal of research on the part of a homeowner, and it may also benefit homeowners to explore other options as a refinancing may simply not be worth the cost for some, as closing costs or fees associated with doing so may offset any benefits they gain from an interest rate reduction.