Is It Still Smart to Refinance for Cash Back in 2018?

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The demand for cash out refinancing has not slowed down in recent years. Yes, interest rates remain near historically low levels and consumers in the U.S. continue to embrace tapping the equity in their property to receive money in their hands.

Will New Tax Laws Impact Homeowners?

Congress enacted new tax laws in 2018 that could have a dramatic impact on homeowners. Properties that had financing close escrow by January 1, 2018, are still eligible to deduct the mortgage interest up to $750,000. In the past borrowers could maximize tax deductions with the interest on a home equity loan. That is no longer available as homeowners are not allowed to deduct this type of interest. Many believe that homeowners will migrate from home equity products back to traditional refinancing with cash back options. However it remains unclear specifically how the IRS will interpret deducting interest on mortgages less than $750,000 when money is received by the borrower. The financial articles are giving mixed reviews, so you should check with your attorney.

People Want to Make Home Improvements

Home values are rising and there is a lack of housing in many parts of the country. If you want to sell your home and get the best price, it is a good idea to do home renovations with your equity. If you make your home renovations smart, you may see a substantial increase in the value of the home.

For example, some of the best renovations to spend money are redoing the kitchen, bathroom and upgrading windows. Doing these things can add tens of thousands of dollars of value to the home’s value.

Investing Cash for Solar Energy

Borrowers at a high volume are choosing the cash out refinance to upgrade their home to produce solar energy. Yes, this makes the world cleaner, while lowering their monthly payments. In most cases, this appears to be a wise investment. Clearly choosing the right solar energy company in your neighborhood is an important factor to consider prior to spending the proceeds of your cash out refinance.

Attractive Interest Rates on 15 Year Mortgages

Rates on 15-year mortgages are very low, well below 4%. So, if you can refinance your loan into a 15-year loan and save more than 1% on the rate, you could enjoy a payment that is not a lot higher than what you had before. We continue to see borrowers choose the 15-year option when they decide to refinance for cash back. In the past, we saw most borrowers select the 30-year term when committing to a cash out mortgage.

People Want to Stay in the Homes Longer

More people are buying homes today and staying in them longer. If people are going to live in their home for more than 10 years, it can make sense to do the refinance, get a lower rate and pull out cash. If you want to move in a few years, the closing costs on the new loan could make it not worth doing. But more Americans are stabilizing where they live these days as the economy is getting better.

The takeaway from this article is that cash out mortgage lending is on the rise again as rates are low and the economy is much stronger than five years ago. Lending standards are much more relaxed, so you should be able to pull out cash as long as your credit is decent, your home has gone up in value, and you have the income proven on paper to support your mortgage.

 

References: https://www.refiguide.org/tax-implications-cash-out-refinance-loan-deducting-interest-2018 and https://www.realtor.com/advice/finance/home-equity-loan-taxes/ 

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