Cash-out refinancing hit $1.2 trillion in 2021. Here’s why now is a good time to sign up for one

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You may want to refinance with a payout before mortgage rates go up.


Important points

  • With a payout refinance, you can borrow more than your remaining mortgage balance.
  • Last year, many borrowers rushed to refinance, and you may want to do the same.

Many people refinance their mortgages to cut their monthly payments. But in some cases, refinancing your mortgage could get you a comparable monthly mortgage payment or even more — and that’s not necessarily a bad thing.

If you are doing a withdrawal refinance, you might get into this situation. That’s because with a payout refinance, you can borrow more than your remaining mortgage balance while still having access to a pile of cash that you can use for whatever purpose.

Last year, payout refinancing hit $1.2 trillion, Black Knight reports. This is the highest level since 2005 and a 20% increase from the previous year.

Given that refinancing rates have been very competitive in 2021, that’s not too surprising. But while refinance rates start higher in 2022, it could still pay off to do a payout refinance. Here’s why.

Tap that equity while you can

Right now, homeowners are sitting at record levels of equity due to rising home values. You may have more options to withdraw cash from home than you have at any other time.

Imagine you owe $200,000 on your mortgage and your home is typically worth $250,000. If your home is now worth $330,000 because property values ​​have risen nationwide, you have the option to borrow more if you need to.

In 2021, homeowners tapped $275 billion in home equity. In the fourth quarter alone, more than 1 million homeowners tapped into $80 billion. Despite this activity, equity available to mortgagors grew $446 billion in the fourth quarter. And that means many homeowners are likely to qualify for a generous payout refinance right now.

Borrow carefully

The great thing about a payout refinance is that it’s a fairly easy and inexpensive way to borrow money. Even though refinance rates are higher than they are in 2021, they’re still lower than the rates you typically see for alternatives like home equity loans and personal loans.

However, if you want to do a withdrawal refinance, proceed with caution. The more money you take out of your home, the larger your mortgage payment. If you default on these payments, you risk losing your home to foreclosure. Even if the situation doesn’t get that bad, late mortgage payments can cause serious damage to your credit rating.

However, if you have specific cash needs — say you want to pay off a bunch of credit card debt, renovate your home, or start a business — now’s a pretty good time to consider a payout refinance. Once home prices start falling nationally, homeowners across the board will have less equity to invest. If you’re looking to maximize this borrowing opportunity, now is the time to do so while home prices are still sky-high.

A historic opportunity to potentially save thousands on your mortgage

Interest rates are unlikely to remain at multi-decade lows much longer. That’s why it’s crucial to take action today, whether you’re refinancing and cutting your mortgage payment or ready to pull the trigger on a new home purchase.

The Ascent’s in-house mortgage expert recommends this company find a low interest rate – and in fact he’s used them to refect himself (twice!). Click here to learn more and see your plan. While this doesn’t affect our opinions about products, we do receive compensation from partners whose listings appear here. We are always by your side. Here is The Ascent’s full advertiser disclosure.

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