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Serving South Florida

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For over 35 years

cash out refinance

Shop for a Mortgage as Rates Rise

It is always advisable to shop for a mortgage, but as rates rise the savings can be significant. Each lender offers different loan programs and sets different borrower requirements. It’s important that you get quotes from several types of financial institutions, mortgage lenders, and brokers to find one that offers the best loan program for you.
Banks
Banks are for-profit financial institutions that typically offer several different products such as mortgages, credit cards, checking and savings accounts, and more. Many large banks have branches nationwide or throughout a specific region where you can get in-person support, and they also might offer a wider selection of mortgage products.
One downside to banks is that they tend to charge slightly higher interest rates on home loans compared to credit unions, according to a side-by-side comparison by the National Credit Union Administration.
Credit Unions
Credit unions are nonprofit organizations that offer banking services to their members. In addition to offering lower interest rates on mortgages and other financial products, credit unions have historically earned the highest customer satisfaction ratings.
However, you’ll need to join a credit union to get a mortgage. Some credit unions are open to anyone, but others may require you to work in a certain industry or live in a certain area.
Mortgage Lenders
You might also find a home loan with another type of lender. For instance, online lenders, such as Rocket Mortgage, offer an end-to-end digital process. You may be able to get pre-approved, upload loan documents, and close on the loan all online. By saving money on overhead costs, online lenders may also be able to offer lower rates or special discounts.
Mortgage Brokers
Mortgage brokers are licensed to act as a go-between with you and your lender. When working with a mortgage broker, you’ll have access to a variety of residential loan programs from different lenders. The broker doesn’t make a loan. Instead, the broker has a variety of lenders they work with.
In general, a mortgage broker will have a lot of knowledge of different home loan programs, and a good idea of what you might qualify for, including what interest rate you’re eligible for.
Shop For Best Rates
Getting rate quotes from multiple lenders and comparing offers is one of the easiest ways to save money on your mortgage. That’s because the interest rate is one of the key components of the mortgage’s total cost, and rates can vary considerably with each lender. Despite this, about half of homebuyers skip shopping for the best rate.
To find the best loan for you, research all costs of the loan. Knowing just the amount of the monthly payment or the interest rate isn’t enough. Even more important than knowing the interest rate is knowing the APR — the total cost you pay for credit, as a yearly interest rate. The interest rate is a very big factor in calculating the APR, but the APR also includes costs like points and other credit costs, like mortgage insurance. Knowing the APR makes it easier to compare “apples to apples” when considering mortgage offers.
When you’re shopping around, you may see ads or get offers claiming to have rates that are very low or fixed. But they may not tell you the true terms of the deal as the law requires. The ad may feature buzz words that are signs that you’ll want to dig a little deeper.
  • Low or fixed rate. A loan’s interest rate might be fixed or low only for a short introductory period — sometimes as short as 30 days. Then your rate and payment could increase dramatically. Look for the APR: under federal law if the interest rate is in the ad, the APR also should be there. Although it should be clearly stated, you may instead need to look for it buried in the fine print or deep within a website.
  • Very low payment. This might seem like a good deal, but it could mean you would pay only the interest on the money you borrowed (called the principal). Eventually, though, you would have to pay the principal. That means you would have higher monthly payments or a “balloon” payment — a one-time payment that is usually much larger than your usual payment.
You also may find lenders that offer to let you make monthly payments where you pay only a portion of the interest you owe each month. The unpaid interest is added to the principal that you owe. That means your loan balance will increase over time. Instead of paying off your loan, you end up borrowing more. This is known as negative amortization. It can be risky because you can end up owing more on your home than what you could get if you sold it.
Find out your total payment. While the interest rate determines how much interest you owe each month, you also want to know what you must pay for your total mortgage payment each month. The calculation of your total monthly mortgage payment considers these factors, sometimes called PITI:
  • principal (money you borrowed)
  • interest (what you pay the lender to borrow the money)
  • taxes and
  • homeowners’ insurance
“Mortgage rates rose again as markets continue to manage the prospect of more aggressive monetary policy due to elevated inflation,” says Sam Khater, Freddie Mac’s chief economist. “Not only are mortgage rates rising but the dispersion of rates has increased, suggesting that borrowers can meaningfully benefit from shopping around for a better rate.”

Using Home Equity To Buy  Another Property

Interest rates are rising and so it the equity in your current real estate holdings. There are alternatives to financing a second home or investment property other than a traditional mortgage. If you have a large amount of equity in your first home, you could obtain enough money through a Home Equity Loan to pay for most—if not all—of the cost of a second home.
Using a home equity loan (also called a second mortgage) to purchase another home can eliminate or reduce a homeowner’s out-of-pocket expenses. However, taking equity out of your home to buy another house comes with risks.
If you’re interested in using home equity to purchase a new home, the value of your house will need to be high enough to support the loan, and you’ll have to meet your lender’s requirements. Here’s how to get a second mortgage to buy another house.
1. Determine the amount you want to borrow. Before taking equity out of your home to buy another house, decide how much you want and need. Home equity loans limit how much you can borrow. In most cases, you can only access up to 85% of the equity in your home.
2. Prepare for the application process. Your approval for a home equity loan will depend on multiple factors. The value in your home will determine the maximum amount of equity available, and your financial information will determine how much of that equity you can borrow. In addition, your lender will look at your credit score, income, other outstanding debts and additional information.
3. Shop around for a home equity loan. When taking out a home equity loan for a second home, you can use any lender. The loan does not have to be with your current bank or mortgage company. So the best way to get a competitive interest rate is to shop around and get quotes from multiple lenders. As you compare, look at the interest rate, loan terms, fees and estimated closing costs. You can also negotiate with the lender on the rate or a particular term.
4. Apply to the loan with the best terms. Once you’ve determined the loan with the best terms, you’re ready to apply. You’ll submit the application and provide the requested information. Your lender will order an appraisal of the home or determine the value using another method.
5. Close on the loan. After you go through the underwriting process, your loan will be ready to close. Before finalizing the loan, make sure you understand the terms carefully. Also, know that the Three-Day Cancellation Rule allows you to cancel a home equity loan without penalty within three days of signing the loan documents.
Before you use a home equity loan for a second home, consider the pros and cons of taking equity out of your home to buy another house.
Pros:
·      You’ll reserve your cash flow. Using home equity to buy a second home keeps cash in your pocket that you would otherwise use for the home purchase. This increased cash flow can result in a healthier emergency fund or go towards other investments.
·      You’ll increase your borrowing power. Buying a house with equity will allow you to make a larger down payment or even cover the entire cost — making you the equivalent of a cash buyer.
·      You’ll borrow at a lower interest rate than with other forms of borrowing. Home equity products typically have lower interest rates than unsecured loans, such as personal loans. Using home equity to purchase a new home will be less expensive than borrowing without putting up collateral.
·      You’ll have better approval chances than with an additional mortgage. Home equity loans are less risky for lenders than mortgages on second homes because a borrower’s priority is typically with their primary residence. This may make it easier to get a home equity loan to buy another house than a new separate mortgage.
Cons:
·      You’ll put your primary residence at risk. Using a home equity loan to buy a new house can jeopardize your primary home if you’re unable to handle the payments.
·      You’ll have multiple loan payments. Taking equity out of your home to buy another house means you’ll potentially have three loans if you have a mortgage on both your primary residence and the second home in addition to the home equity loan.
·      You’ll pay higher interest rates than on a mortgage. Home equity products have higher interest rates than mortgages, so you’ll be borrowing at a higher total cost.
·      You’ll pay closing costs. When using equity to buy a new home, you’ll have to pay closing costs, which can range from 2% to 5% of the loan amount.
Other options for buying a house with equity
Using a home equity loan to buy another house is just one path borrowers can take. Here are a few additional options for using equity to buy a new home.
Cash-out refinance
A cash-out refinance is one way to buy another property using equity. A cash-out refinance accomplishes two goals. First, it refinances your existing mortgage at market rates, potentially lowering your interest rate. Secondly, it rewrites the loan balance for more than you currently owe, allowing you to walk away with a lump sum to use for the new home purchase. Taking equity out of a home to buy another with a cash-out refinance can be more advantageous than other options because you’ll have a single mortgage instead of two. However, interest rates on cash-out refinances are typically higher than standard refinances, so the actual interest rate will determine if this is a good move.
Home equity line of credit
A home equity line of credit (HELOC) is another option for using home equity to purchase a new home. HELOCs are similar to home equity loans, but instead of receiving the loan proceeds upfront, you have a line of credit that you access during the loan’s “draw period” and repay during the repayment period. This method of using equity to buy investment property can be helpful if you’re “house flipping” because it allows you to purchase the property, pay for renovations and repay the line of credit when the property sells. However, interest rates on HELOCs are typically variable, so there is some instability with this option.
Reverse mortgage
Homeowners 62 or older have an additional option of using equity to buy a second home — a Home Equity Conversion Mortgage (HECM). Commonly known as a reverse mortgage, a HECM allows borrowers to access home equity without making payments. Instead, the loan is repaid when you leave the home. Reverse mortgages provide a flexible way of using equity to buy another home, as borrowers can choose between receiving a lump sum or a line of credit. However, keep in mind that while you won’t make payments with a reverse mortgage, interest will accrue. This causes the loan balance to grow and can result in eating up all the home’s equity.
 Alternate forms of financing for purchasing a second home include:
  • Private money lenders
  • Seller financing
  • Peer-to-peer lending
  • Hard Money Loans
  • Personal Loans