|CONFORMING AND FHA LOAN LIMITS|
This is a reminder that Conforming and FHA Loan Limits are up for 2018.
$5.4 TRILLION OF HOME EQUITY
A recent article in The National Mortgage News reported that there was $5.4 trillion in home equity in the U.S. in 2017.
$3 trillion of that was gained over the last five years – another reminder of the benefits of owning a home.
Prior to 2008, when home equity surged, most everyone used their homes as giant ATMs and borrowed against them…and it didn’t go well :).
We aren’t seeing the same thing take place now both b/c borrowers are more responsible and b/c underwriting guidelines are much stricter.
HELOC vs. CASH OUT MORTGAGE
For borrowers who do want to tap into home equity, the question becomes: Is it better to get a Home Equity Line (HELOC) or a Cash Out Mortgage?
HELOCs have two disadvantages: (1) The interest is no longer tax deductible; and (2) HELOC interest rates are adjustable, tied to Prime Rate and climbing.
Prime Rate was only 3.25% for about six years after the meltdown. But, it recently climbed to 4.5% after the Fed increased the Fed Funds rate.
B/c HELOC interest rates are usually Prime Rate plus a “margin,” HELOC rates are now as high as 6.5% or more, depending on the combined loan-to-value ratio.
Interest rates for a “no cost” cash out mortgage are now in the low 4’s, for most conforming loan amounts.
If you have a fixed rate in the 3’s currently, and you do not need a large amount of cash, we recommend a HELOC still, despite the disadvantages.
If you need a large amount of cash (over $100,000 for example) that you will not be able to pay back in the foreseeable future, a cash out mortgage may be a better option.
30 Year Fixed Rate Loan at a Cost of One Point: 4.0%* (APR = 4.24%) Rates increased yesterday for a variety of reasons – inflation, less demand, positive economic news.
*The above rate quote has the following assumptions: $500,000 purchase; $400,000 loan amount; 20% down payment; credit score above 740; property is SFR; borrower has sufficient income to qualify; Estimated closing costs affecting the APR include $4,000 for Origination Fee; $995 for Lender Fees; $2,300 for Title Insurance (CLTA and ALTA), $800 for Escrow Fee; and $1,000 for Prepaid Interest.