David Wickert and Accunet Loan Consultant Tim Holdmann discuss the recent Federal Reserve rate cut, why you should get a bridge loan, and more in this week’s episode of the Accunet Mortgage and Realty Show.
This week’s highlights:
- Moving from one house to another can be financially tricky. Getting a bridge loan makes it easier.
- On Wednesday, Oct. 30, the Federal Reserve cut the federal funds rate by 0.25%, dropping it to 4.75%.
- Rates are still fantastic; almost everyone who got a mortgage last year is in the money to refinance their home or condo.
The Fed cut rates again — but mortgage rates are up.
Last Wednesday, the Federal Reserve cut rates for the third time in 2019, bringing the fed funds rate from 5% to 4.75%. This is pretty converse from 2018, when they raised the fed funds rate four times. These rate cuts are an attempt to protect the American economy from a recession — but what does it mean for mortgage rates?
The answer: It doesn’t mean much. For our purposes, the fed funds rate really only affects the prime rate, which in turn affects home equity lines of credit (HELOCs). This most recent cut was baked into the rate cake before it took place, meaning there’s no point in waiting for it to drop again. Instead, snag a low rate while you can.
Mortgage rates: 2019 vs. 2018
At the end of the day on Friday, Accunet could offer 3.99% on a 30-year fixed-rate loan with $800 in costs and a 4.03% APR.
Barely a year ago, the same deal would’ve had you at 4.99%. That might not seem like much, but a full percentage is enough to put some serious cash back in your pocket. For instance, if your rate drops by 0.5% on a $200,000 loan, you save $720/year in free money. If you’re thinking about refinancing your home, do it sooner rather than later; rates could go back up again at any time.
Need help refinancing your home? Contact Accunet for a step-by-step guidance from one of our certified loan consultants.
Client story: How and why to get a bridge loan
We recently had a married couple approach us about buying a new home. Now, they haven’t put their current home on the market yet, and for good reason: This home is going to get snapped up quick. These folks happen to live in a very popular part of town in a reasonably-priced home ($300,000 – $400,000 range), which is a very hot market. Their fear is that, if they list their house before they have a new home picked out, they’ll be homeless in a matter of weeks.
That’s where a bridge loan comes in. A bridge loan lets them get at the equity in their home before the sale. Then, they can use those liquid funds (which they borrow against the old house) to make a down payment on a new home. This frees up the timeline and gives some breathing room while planning their move.
When you have two homes, mortgage bankers have to be conservative. In reality, we know you’ll sell the house — but we have to prepare for the worst-case scenario. Bridge loans alleviate some of that stress, allowing you to move from house A to house B with minimal risk.
What to do with a cash-out refinance
Once you have some equity built up in your home, you can opt for a cash-out mortgage refinance. Cash-out refinances let you replace your current mortgage with a new home loan for more than what you owe on your house and lets you pocket the extra cash.
Technically, there are no requirements for how to spend the money. But, in our opinions, there is a best way to spend it:
- Square footage
If you’re not sure what to focus on, we find these areas are typically worth the investment, as they can make a substantial difference down the road. Spending the money on home improvements is a great way to prepare your home for a future sale, even if you’re not planning on selling for a few years.