Page 10 - February 2023 Issue.indd

DOLLARS AND SENSE by Tolbert Rowe

If It SoundsToo Good to Be True, It Usually Is!

One of the unintended consequences of have already been contacted by your a 15.8% gain, year over year.
a rapid increase in interest rates like we current mortgage servicer you are in a
Homeowner gains in equity are slowing,
have seen recently is the proliferation good equity position. If you haven’t been
with annual appreciation gains falling
of solicitations from lenders to contacted about cash out refi nancing,
from 18% in June to 10% in October and
homeowners with equity. All of the you may be soon, or, it has been
likely continuing to fall. This becomes a

sudden, loan officers are suggesting it determined that you don’t have suffi cient

major part of the refinance sales pitch
is a great financial move to refinance equity to justify refinancing to a higher

to capture the elevated value of your
your 3% mortgage to a 6.5% mortgage interest rate.
property. “Your house may never be
to make home improvements or
Secondary market, Fannie Mae and worth what it is worth today” making it
consolidate debt. As usual, if it sounds
Freddie Mac, guidelines limit the even more critical to do something now
too good to be true it usually is.
amount you can borrow in a cash out instead of later.
Recognizing that real estate values have refinance to 80% of the value of your
Rarely, if ever will it be a prudent fi nancial
peaked, and in some areas started to home. Assuming your home is worth
decision to sacrifice what is possibly the

come down, mortgage companies and $250,000 the maximum new mortgage
lowest interest rate we have ever seen
loan officers who thrived in a refi nance you would be eligible for would be

to get money for home improvements
market are struggling to stay in business. $200,000.
or debt consolidation. If you really
Forced to compete in an unfamiliar
To determine how much equity, you need to make home improvements, or
purchase market they are turning to
must subtract your current mortgage consolidate debts, there is another way
desperate means to justify a reason to
balance from the 80% number, in this to accomplish it.
refi nance.
case $200,000. If your current mortgage
Putting the cash out refinance option to

Mortgage loan servicers have portfolios balance is $190,000 you would realize
the side because paying 6.5% on your
of thousands, if not tens of thousands $10,000 in what is called “cash out”,
mortgage is not a prudent financial
of loans and can easily determine how hence the term “cash out refinance”.
move when you’re currently paying
much equity you may have based on your In this case, it makes little sense to
3.5%, you can consider a home equity
home’s value at the time you closed on refinance, even if rates were comparable

loan or line of credit.
your existing mortgage. In addition, they to what you are currently paying.
have access to databases of estimated Home equity loans or lines of credit
CoreLogic Homeowner Equity Insights
current values of properties, Zillow work the same as a cash out refi nance in
report from December 9, 2022, reports
being one, and can easily determine the determining how much you can borrow.
that US Homeowners with mortgages,
approximate equity you have. What may diff er is how much you can
which is approximately 63% of all
borrow as a percentage of the value of
Once they have determined that you properties, have seen their equity
your home. In our previous cash out refi
have enough equity to justify refi nancing increase by a total of over $2.2 Trillion
example we determined you would only
you have become a “hot” lead. If you since the third quarter of 2021 which is
be able to borrow $10,000 based on 80%
loan to value.
Some home equity loan lenders will
“Your Mortgage Consultant Since 1985”
allow you to borrow up to 90%, which
Purchase or Refinance in the case of our $250,000 house would
be $225,000 or $35,000 if the current
mortgage balance is $190,000.
Let’s assume you want to access and
borrow $35,000 of the equity in your
home. Essentially you have two ways to
115 E Dover St. Ste 3 - Easton, MD
access the funds and two ways to repay
tolbert@baycapitalmortgage.com C. Tolbert Rowe, the loan. You can borrow a fi xed amount
www.baycapitalmortgage.com NMLS Vice President/Lending for a specific repayment term, which is a

182844
home equity “loan”, or you can get a line
410-819-3005 / cell 410-310-3520 of credit where you can access and pay
10