Home Pay off Mortgage rates drop to near all-time lows – October 11, 2021

Mortgage rates drop to near all-time lows – October 11, 2021

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Last week, the 30-year average fixed-rate mortgage rate fell 0.04% to 3.13%. While rates haven’t been below 3% since February, they’re still very close to all-time lows, not to mention being 1% below pre-pandemic levels.

This low rate environment, combined with rising home prices, can be particularly beneficial for existing homeowners, allowing them to turn their home equity into cash with a cash refinance. Almost half of all refinancings in the second quarter of 2021 were cash refinances, up from 37% in the first quarter of the year, according to real estate data analysis firm Black Knight.

But there are certain considerations that can make other refinancing options – or not to refinance at all – a better solution for you. Here is how to calculate if a refinance with withdrawal is better for your personal financial situation, as well as some alternatives.


Last week’s average mortgage rate is based on mortgage rate information provided by national lenders to Bankrate.com, which, like NextAdvisor, is owned by Red Ventures.

Cashing compared to interest rate and term refinancing

Refinancing involves replacing your existing mortgage with a new one. Interest rate and term refinancing primarily focuses on changing your interest rate and the length of your loan, saving you money by setting a lower rate or paying off your loan faster. . Cash-out refinancing means taking out a larger mortgage than you owe and pocketing the difference in cash.

Rate-and-term refinancing is best suited to those who want to change only the rate and / or term of their mortgage. There are generally less closing costs for rate and term refinancing. You may still be able to withdraw a small amount of money on a rate and term refinance through a process known as a cash-limited refinance. You can get up to $ 2,000 or 2% of the loan amount, whichever is less, according to the rules set by Fannie Mae.

Refinancing with cash allows you to get a lot more money in your pocket, which you can then use to finance home renovations, consolidate high-interest debt, or invest. Cash-out refinances are generally more expensive and come with higher closing costs.

The example below shows the hypothetical costs of a rate and term refinance and cash refinance for a 30 year loan with an original loan that was a $ 270,000 30 year loan at 4, 75%.


  • Home value: $ 300,000
  • Maximum cash refinance amount (up to 80% of home value): $ 240,000
  • Existing loan balance: $ 200,000
  • Withdrawal amount: $ 40,000
  • Current monthly payment: $ 1,408

Using the NextAdvisor mortgage calculator, we can see some of the main differences:

New monthly payment Interest rate New balance Total interest paid over 30 years
Refinancing of collection (30 years) $ 1,111 3.75% $ 240,000 $ 160,277
Rate and term refinancing (30 years) $ 843 3% $ 200,000 $ 103,601

With rate and term refinancing, your payments will be lower, you will have a lower interest rate, and you will pay less total interest charges over the life of the loan.

A refinancing with withdrawal has the advantage of allowing you to get cash by drawing on the equity in your home. However, you would most likely pay a higher rate, higher closing costs, and a higher monthly payment.

When should you (and shouldn’t) refinance with withdrawal

Refinancing with cash can be a great way to get financing at a low interest rate – even more so in today’s interest rate environment – but just because you can turn your home equity into cash doesn’t mean you can turn your home equity into cash. fast that you should.

Refinancing with withdrawal will reduce the amount of equity in your home and increase the time it takes to pay off your loan. And, as with any home equity financing method, the money you borrow is secured by your home as collateral, which means you could lose your home if you don’t make your payments. Before you consider withdrawal refinancing, make sure you have good use of the money you withdraw and have a solid plan to pay off the loan.

2 good reasons to make a withdrawal:

  1. To consolidate high interest debt: With an average 30-year fixed-rate mortgage rate barely hovering above 3%, you can use cash-out refinancing to pay off and consolidate other high-interest debt. You will have the advantage of simplifying your finances by reducing the number of creditors you have to pay each month.
  2. Home Improvements: If you are looking to renovate, upgrade, or repair your home, cash refinancing can be a good way to finance these expenses at a lower interest rate than credit cards or personal loans. Depending on your tax situation, mortgage interest may be tax deductible. Plus, upgrades can improve the value of your home.

3 reasons why you shouldn’t withdraw:

  1. If you are planning to move or sell your home in the near future: Closing costs are almost always involved in a refinance and can range from around 3% to 5% of your loan amount. If you are planning to move or sell your home soon, you are unlikely to break even on closing costs.
  2. If you don’t have enough equity to justify closing costs: Depending on the equity in your home, lenders may have limits on the amount of money you can get. Withdrawal refinances are more expensive than rate and term refinances, so you need to make sure you can withdraw enough money to justify the additional closing costs.
  3. To buy a new car: Buying a new car with the proceeds of a cash refinance is generally a bad idea, as you could end up paying more total interest charges due to the length of the loan, despite having an interest rate. lower. For example, using the NextAdvisor loan calculator, a $ 20,000 auto loan with an interest rate of 5% paid over 5 years will cost $ 2,645 in total interest. However, that same $ 20,000 added to a 3% interest rate mortgage paid over 30 years will cost $ 10,427 in total interest.

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