• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Sonoma County Mortgages

Contact Us About Mortgage Financing

All financing provided by New American Funding

(707) 217-4000 | Prequalify Now

Search Sonoma County Mortgages

  • Home
  • Purchase
    • How Much Down Payment To Buy A Home?
    • How Much Income You Need To Buy A Home
    • How Much Should I Save For Buying A Home?
      • How Rates Affect Payment
    • No PMI Mortgages
    • FHA Loans
    • Sonoma County Disaster Loans
    • Jumbo Loans
  • Refinance
    • Mortgage Rates
    • Does It Make Sense To Refinance?
      • Get Your Refi Paperwork In Order
    • How To Pay Off Your Loan Faster
    • How To Remove PMI
    • How Lenders Price & Quote Loans
  • Loan Programs
  • Payment Calculator
    • Mortgage Affordability Calculator
  • Blog
  • Videos
  • About SCM
  • About Scott Sheldon

Primary Sidebar

Sonoma County Mortgages is a part of New American Funding

New American Funding - NMLS #6606

Get Your Latest Rate Quote Now!

Should you cash out refinance or get a home equity line of credit?

August 28, 2022 by Scott Sheldon

Share on Facebook Share on Twitter Share on Pinterest Share on LinkedIn Share on Email
Should you cash out refinance or get a home equity line of credit?

Inflation is hitting consumers right and left. Seems like everything is going up these days and one of the most expensive types of debt has just got even more expensive- consumer loans. If you have consumer loans including student loans, personal loans, even a home equity line of credit, or credit cards expect the costs of such obligations to rise. Here are ideas you might want to consider as relates to combining your debt for payment relief…

The Federal Reserve just increased the Fed funds rate by seventy-five basis points. That has made mortgage rates improve as corporate money is now costing more. This led to bond market improvement driving mortgage rates down. 30-year mortgage rates with good credit are no longer in the high 6% range. Based on that, you might want to rethink combining your debt into a fixed-rate, new, first mortgage. Here is the conundrum that homeowners face. A 3% mortgage on their first while simultaneously supporting the debt payments on credit cards, car loans, and other obligations straining the family budget. The options are a new first mortgage giving up the low rate into today’s prevailing fixed rate mortgage, going into a home equity line of credit that is continuing to rise, or getting a fixed rate second.

The things to consider are home equity lines of credit and fixed-rate second mortgages are no longer tax deductible. A first mortgage to combine and or cash out to pay off debt is still tax deductible. The payment on a home equity line of credit is interest only and, it’s effectively a giant credit card tied to your home. It reports to the credit bureaus the same way which a credit card does which means if you max out your home equity line of credit, that can hurt your credit score, in the same way, maxed-out credit card balances do. So, should you combine your mortgage? Get rid of your first mortgage in the threes, pay off all your consumer debt, save $100’s a month, and go into a 5% loan on a first mortgage. It’s possible that it could make sense. Five percent is a lot better than 6.5% which is where mortgage rates were just 60 days ago. As a result, know that this is a temporary situation in the markets right now as it relates to inflation. Meaning if you did consolidate into your first mortgage you could always refinance in the future again when rates come down. Notice it’s when rates come down not if rates come down.

Let’s take a pause and rewind the clock before the COVID-19 pandemic. Mortgage rates average from 2009 through early 2020 on average were between 4%-5.25% on a 30-year fixed rate mortgage. The interest rate in that range is more indicative of where rates will drop when this inflation cycle ends. Based on that you should determine whether cash-out refinancing into a new first mortgage would be beneficial or not. Consider this if everything right now is rising including a home equity line of credit, a home equity line of credit today will cost you more in the future. A home equity line of credit is a variable rate mortgage compared to a fixed rate mortgage where you could effectively fix your payment and your costs.

Look at it like this, you can take out a 30-year fixed-rate mortgage to combine your debt, cash out, and fix your payments. If you sign up for a home equity line of credit, you’re essentially signing up for uncertainty particularly if you draw on that and incur a balance as a result. You are understanding that correctly. A home equity line of credit is uncertain, unlike a guaranteed first mortgage.

When you’re looking at the overall balance sheet of your monthly budget and looking at food costs, gas costs, and every other cost in your life that is also unstable and rising. Why sign up for a home equity line of credit which also will add to the future erosion of your income? Remember when costs rise you see less of your monthly income. It still costs you to live and in an inflationary environment, it costs you more as a result. Whereas in a fixed-rate mortgage it’s one less thing to have to worry about in the broader sense of your household budget.

 

If you’re looking to get pre-qualified to buy a house start today by getting a  no-cost loan quote!

 

Related Mortgage Advice from Scott Sheldon

  • why the house that needs work should not be overlooked
    Home Equity Line Of Credit Loans May Soon Be Adjusting Up

    If you have a home-equity line of credit, or thinking about getting one, here is…

  • Does My Loan Type Hurt My Credit Score?

    Future favorable financing deals, low rates and preferred credit offerings all will be available depending…

  • home equity lines of credit
    New tax bill 2018- why people should refinance their equity lines and second mortgages

    The new 2017 tax plan is spelling unwelcome news for mortgage borrowers who hold home…

  • Which option makes the most sense for cash out refinancing?
    Which option makes the most sense for cash out refinancing?

    If you have the need to borrow money, but you don't want to tap your…

Filed Under: Uncategorized Tagged With: BAD CREDIT MORTGAGE, buying a house, cash out refi, conventional mortgages, debt consolidation, home equity, Home equity line of credit, home loan refinance, how to buy sonoma county real estate, lines of credit, money saving, mortgage rate quote

Get Sonoma County Mortgages News and Updates in Your Inbox

Footer

SCM on Facebook

SonomaCountyMortgages.com

Connect on Facebook

SCM On Instagram

Follow Sonoma County Mortgages on Instagram

Follow on Instagram

SCM on Zillow

Zillow Reviews for Scott Sheldon, New American Funding

See Reviews on Zillow

Location & Contact

Sonoma County Mortgages and New American Funding are an Equal Opportunity Housing Lender

Scott Sheldon, Senior Loan Officer
NMLS ID# 287389
2455 Bennett Valley Road C107
Santa Rosa, CA 95405
1-707-217-4000
View SCM Map | Email Us!

Map of Sonoma County Mortgages New American Financing Office

View Map on Google

Copyright 2010–2023 SonomaCountyMortgages.com · About Us · Sonoma County Loans · Privacy Policy · Terms Of Use · Legal · Site Map

NMLS Consumer Access © New American Funding. All rights Reserved. NMLS ID#6606.
Corporate Office 14511 Myford Road, Suite 100, Tustin, CA 92780. We at New American Funding take great pride in our customer service and make it our number one priority. We encourage you to contact us for complaint resolution or any post-closing questions you may have regarding the servicing of your loan. We strive to have your experience with New American Funding a stellar one. In the rare case that our service did not meet your expectations, please call our customer care hotline at 1-800- 450-2010, ext. 7100 or you may contact us by email customerservice@nafinc.com. Please leave a detailed message and we will follow up with you no later than the end of the next business day. If you are using a screen reader or other auxiliary aid and are having problems using this website, please call 800-450-2010 Ext. 7100 for assistance.

State Licensing (Opens in New Window) | Privacy (Opens in New Window)
Terms of Use (Opens in New Window) | Electronic Consent Agreement (Opens in New Window)
Opens in new window Opens an external site Opens an external site in a new window