July 16, 2021

Summertime refinances can be cool financial solutions

As the nation climbs out of Covid-19’s massive economic crater, home mortgage loan refinances continue to be a valuable lifeline for homeowners on a variety of levels.

Home equity totals have never been higher. America’s collective equity soared to a record $7.3 trillion in 2020, for an average of about $158,000 per household.

With rock-bottom mortgage interest rates, Americans pulled out a total of $70.4 billion in equity during 2020, the highest in nearly 15 years. After rising for a few months in 2021, rates are near record lows again.

On another positive note, the Federal Housing Finance Agency officially axed its pandemic-era "adverse market fee" on Fannie Mae and Freddie Mac refinances July 16. Implemented in 2020, the controversial 50 basis-point charge due to "increased cost and risk" to the agency from Covid-19 was mostly passed on to customers.

Even before these changes, the first quarter of 2021 saw a 2.55-million jump in refinance mortgages, a 12% increase over the fourth quarter of 2020 and a 113% spike over the first quarter of 2020.

But mortgage analysts Black Knight said that as of early June 2021, there were still as many as 14.1 million homeowners who could benefit from a refinance, saving as much as $287 on month on their mortgage payments.

Whether to get a better interest rate, lower monthly payments or get extra cash to cover expenses (or all three), a refinance can be a tool to meet many financial goals.

Some families may even use a cash-out refinance to help pay for upgrades to their homes, including extra rooms, backyard swimming pools, flooring or windows.

Many older homeowners benefit from the Home Equity Conversion Mortgage (HECM), popularly known as a Reverse Mortgage. If you are 62 or older, HECM allows you to remain in your home while alleviating financial burdens.

This summer, Fannie Mae and Freddie Mac are also debuting new programs to help lower-income borrowers get in on the refinance “action.” These options are restricted to borrowers with loans backed by the Enterprises. Here are a few details:

As of June 5, Fannie Mae borrowers earning 80% or less of their area’s median income may be eligible for “RefiNow.” The no cash-out loans must reduce mortgage interest paid by at least 50 basis points and save borrowers at least $50 a month.

More savings come in the form of a $500 credit provided to the lender to be passed on to the borrower if an appraisal was obtained for the transaction.

Along with the income limits, a borrower’s debt-to-income (DTI) ratio must be 65% or less. Borrowers cannot have had any 30-day mortgage delinquencies in the most recent six-month period and no more than one 30-day delinquency in months 7 through 12.

A similar product from Freddie Mac is expected in August.

Call Bay Equity today to check out all your home equity loan options.