What to Know About Refinancing and How to Use the Money to Your Advantage

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The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

Many say the alarm bells are sounding from around the world with rumblings about an extended period of mortgage interest rate hikes. Though mortgage and refinance rates remain low, many financial experts are becoming increasingly vocal about this possibly changing very soon. 

A combination of skyrocketing home prices, COVID-19, and low mortgage interest rates created a perfect wave for consumers looking to not only buy homes but refinance their current domiciles earlier this year. 

But that could all be about to change. "Our forecast is for rates to increase gradually over the next year, and we can expect an overall slowing in refinance activity as a result," said Joel Kan, economic and industry forecaster for the Mortgage Bankers Association (MBA). The MBA is forecasting that by the end of 2022, the interest on a 30-year fixed-rate mortgage will increase to as high as 4%. 

Several economic trends are impacting mortgage rates. The Federal Reserve is now looking at cutting any further stimulus programs. At the same time, the U.S. Treasury continues to discuss whether to raise the debt ceiling and Congress is debating the nation’s borrowing limit. 

Don’t Wait To Refinance?
"The best advice for homeowners is to act soon if they've pondered but put off a refinance," Realtor.com Chief Economist Danielle Hale said. "Rates are still near historic lows, but they are rising, so the window of opportunity for many is closing.” 

The big question for consumers is what mortgage company to trust in a suddenly turbulent home market.  According to Jim Houston,  J.D. Power Director of Consumer Lending Intelligence, "Mortgage servicer satisfaction was buoyed by the industry's response to the pandemic, with some of the biggest gains in customer satisfaction being driven by at-risk and moderate-risk customers who participated in forbearance programs."

But post-pandemic, Houston says mortgage companies are losing their luster with consumers. "Nearly one-fifth of current mortgage customers have had no interaction with their servicer during the past year. Mortgage servicers will need to up their customer-engagement games as the marketplace stabilizes."

According to J.D. Power, traditional lenders like banks and credit unions, while remaining useful, might no longer provide the thrill they once did for their customers. It points to fintech mortgage lenders like Rocket Companies’ RKT Rocket Mortgage, the company’s highest-ranked mortgage servicer in their most recent study.

Rocket Mortgage says it offers several programs for homeowners looking to jump on current low refinance rates to secure a lower monthly payment, switch loan terms, consolidate debt or take cash out to pay bills or renovate the home. 

Longer or Shorter Mortgage Term
Those having trouble keeping up with their monthly payments could use a refinance to lengthen the mortgage term, such as a 15-year to a 30-year loan. Lengthening the life of the mortgage decreases the amount owed each month. You can also refinance your mortgage in the opposite direction, from a longer-term to a shorter term, to get lower interest rates and a quicker payoff.

Cash to Pay Debts 
If you have equity in your home, a cash-out refinance allows you to take advantage of that equity by replacing your current loan with a higher-value loan and taking out a portion of the equity you have. If you have debts spread over multiple accounts, you can use a cash-out refinance to consolidate your debts to a lower interest rate, pay off each bill, and transition to one monthly payment. 

Home Improvements or Renovations 
From fixing a broken air-conditioning or heating system to updating a kitchen or bathroom, using the equity in a home can be a better financial move than taking out a personal loan or putting charges on a credit card. Cash-out refinances usually have lower interest rates than most credit cards.
 
Converting an ARM to a Fixed-Rate Mortgage
An adjustable-rate mortgage (ARM) generally offers borrowers a lower interest rate at the beginning of the loan. After that fixed period of 5-10 years, the interest rate can increase to the maximum amount the borrower was approved for. For that reason, some homeowners will opt to refinance their ARM into a fixed-rate mortgage, which eliminates this fluctuation in interest rate. 

For more information on Rocket Mortgage, go to rocketmortgage.com. 

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.