Cash-out refinances are getting more common, and here's why

As the economy and home values gradually improve, so does borrower confidence in taking on more debt through cash-out refinances. What is the benefit of this transaction, and is it a good idea for you?

There are many reasons to refinance into a higher mortgage amount and get cash back: home improvement projects, paying for tuition, paying off student loan or credit card debt (often with higher interest than your mortgage), paying off a home-equity line of credit, travel costs - or you name it.

If you're looking to reduce other existing debt carrying higher interest rates or raise your home's worth, this can make a whole lot of financial sense. Additionally, with current mortgage rates as low as they are, you could still get a lower rate and payment than what you currently have and get cash out. That's a win-win refinance.

Of course, there are still inherent risks that comes with taking on more debt. Home values are never guaranteed to stay put and will almost certainly be different next year - for better or worse. Without a crystal ball, it's possible that your home's value could drop and you could get in over your head in debt.

If you have equity in more than 20 percent of your home's worth and need extra money to cover other expenses, though, getting a cash-out refinance could be a great (relatively low-risk) option. With the stock markets at all-time highs and the economic outlook bright, it's a great time to see if this makes sense for you.

More stock market records - looking up for 2015

As of Thursday this week, the U.S. stock market stretched to new highs, with the Dow Jones closing at yet another all-time record above 17,000. Stocks have been hovering in this range for at least four weeks, responding positively to encouraging job reports data and the national unemployment rate dropping to 5.8 percent, the lowest point since 2008.

One weak sector for the stock markets that conversely has been a bonus for consumers are low oil prices. With domestic oil production booming - now producing more than 9 million barrels of crude oil a day - supply of oil has been surpassing demand, dropping the cost of gas prices at the pump. This translates to more flexible spending money for consumers leading into the holiday season, boding well for retail strength this December.

In other brighter economic news, the odds are looking good that many American workers will get raises in 2015. Lack of wage growth has been the biggest wrench thrown into the growing economy over the past year, causing many to feel less optimistic about economic improvement. However, many economic indicators, including short-term unemployment falling, are reason enough to believe that wages might start rising in the year ahead.

Please contact a Vertex loan officer to see how all of this economic news changes your ability to obtain a new mortgage now or in the months ahead, and also how your income, debt and home value levels affect your affordability. Feel free to call our office toll-free at any time at 877-939-0339.

Post-election, what's next for the economy?

October job reports rolled in this week continuing the trend of stronger, but not booming economic growth. An additional 214,000 nonfarm jobs were added to U.S. payrolls, marking a couple of historic trends: the longest monthly streak of positive job growth since 1949 and the most consecutive months of more than 200,000 jobs added since 1995.

Despite these economic trends, U.S. voters decided to oust Democratic leaders in Congress, voting in a new wave of Republican congressmen and women during the midterm elections, for any number of possible reasons.

The question for anyone trying to get a mortgage is how all of these political factors affect the markets, and ultimately, how much money you can save on a new mortgage today (and how easy it will be to obtain). By the end of the week following the election, the Dow Jones and S&P 500 ended fairly flat, with the exception of health care stocks falling in response to potential GOP challenges to the Affordable Care Act.

In the meantime, interest rates for a 30-year fixed mortgage still average below 4 percent, among the lowest rates in decades, while home values have climbed. It's unclear how economic conditions will take shape once newly elected officials take office in January, but the current climate remains a great time to see what mortgage opportunities are available for you.

Stuck with student loan debt? Readjust payments to qualify for mortgages

To no one's surprise, U.S. Fed officials announced this week they will officially end its third round of quantitative easing, the stimulus program designed to help boost the economic recovery. This comes after months of gradually reducing the bond-buying program to ease the economy back onto more solid footing.

While the economy has slowly picked up steam, the housing recovery has remained rocky with lackluster growth in 2014 new home sales. A large problem area is the lack of new homebuyers: Those in their 20s and 30s buying homes for the first time. Part of this phenomenon can be attributed to cultural/generational shifts in which millennials are delaying these milestones, but in great part this delay is due to ever increasing amounts of student loan debt.

Growing student debt burdens

It is estimated that the average college graduate today walks away from a four-year degree with $29,400 of student loan debt. This amount of pre-existing debt can push a borrower's debt-to-income level beyond the 43 percent ratio threshold limited by the Consumer Financial Protection Bureau.

To help manage student loan debt and increase your ability to qualify for a mortgage, there are ways to adjust your payment plans for federal student loans. Getting on a "graduated" payment plan can put a cap on your monthly loan repayments based on income levels. Student loans can also greatly affect credit scores, so be sure you make payments on time every month to keep your credit scores high.

If you are concerned about qualifying for a mortgage due to student loans or other debt, consult a Vertex loan advisor. Some of Vertex's loan advisors also hold distinction as Certified Financial Planners and can help you manage your financial obligations with more ease. Feel free to call us anytime toll-free at 877-939-0339.