At least one million Pennsylvania residents have filed for unemployment benefits since the COVID-19 virus starting taking a heavy toll on the US economy. It is expected, however, that the economic recovery could begin this summer and accelerate in the fall.
While the economic slowdown is problematic on many fronts, mortgage rates have dropped significantly in recent weeks. For people who have equity in their homes and want to lower the rate on their first mortgage, now could be the time to save big, even with COVID-19 in the news.
If you have equity in your home in Pennsylvania, below is the information you need to know about a cash-out refinance.
Pennsylvania Cash-Out Refinance Overview
Buying a house in Pennsylvania could well be one of the largest investments you ever make. Most homeowners want to do what they can to keep the home as up to date as they can. But what if you do not have the savings you need to renovate your home and complete necessary repairs?
A cash-out refinance could be what you need. This loan product can help you complete your home improvements, so you don’t need to run up credit card debt or get a personal loan. A cash-out refi allows you to use the cash you have paid into your mortgage to fix up your home, cover repairs, or pay off credits and student loans.
Here’s how a Pennsylvania cash-out refinance can work: Assume you bought a home in Pittsburgh for $200,000, and you have made $50,000 in payments. This means you owe $150,000 on the loan. Now you want to make $20,000 of improvements to your kitchen.
With a cash-out refinance, you take out part of your equity and add what you take out onto your new loan. So, your new mortgage will be for $170,000 – the $150,000 you owed plus the $20,000 in equity you want for your kitchen remodel. Your mortgage lender gives you the $20,000 in cash after the new loan closes.
Rules & Guidelines on Pennsylvania Cash-Out Refinance
Regulations in Pennsylvania require your loan to have been paid on time for at least 12 months before you do a mortgage refinance.
Also, most lenders in the state will only do a cash-out refinance for up to 80% of the home’s value. You might find some lenders willing to do 85%, but they are harder to find. Some Pennsylvania banks may increase the LTV limit if the money is being used for home repairs.
How Much Can You Save With a Pennsylvania Cash-Out Refinance?
Most people only do a cash-out refinance of their first mortgage if they can save substantially on their interest rate. If you can save between .75% and 1% on your mortgage rate, it might be worth doing a cash-out refinance on your home.
Getting a lower rate on your new mortgage can save you big bucks every month. You also will grow equity more quickly over time. If you have a 30-year fixed-rate loan on your $100,000 home at 5.5%, you pay $570. If you can refinance it at 4%, you can save almost $100.
Cash-Out Refinance or Home Equity Loan?
What if you have a great rate on your Pennsylvania home’s mortgage? You may not want to refinance the loan because your new rate could be higher, even if you can pull out equity. What to do?
Experts say you might consider a home equity loan. A home equity loan is a second mortgage on your home. You take out the loan on top of the one you already have and pull out the available equity up to 80% of the home’s value.
A home equity loan offers a fixed rate that will be slightly higher than the rate on your first mortgage; the risk is higher for the lender on second mortgages. But it still can be a great way to get the cash you need without changing your first mortgage.
Final Thoughts on a Pennsylvania Cash-Out Refinance Rules & Guidelines
A cash-out refinance could make a lot of sense right now because interest rates are dropping with the COVID-19 pandemic. If you can save up to 1% on your home loan and have cash available, you can fix up your home, add value, and maybe save on your mortgage every month.
Pennsylvania Cash-Out Mortgage News
- Pittsburgh Homes Are Still Selling, But At a Slower Pace Since Slowdown: Since the COVID-19 crisis hit in March, the Pittsburgh real estate market has slowed. Some homeowners are rushing to sell their homes, do a cash-out refinance, or home equity loan before prices drop significantly. (Post-Gazette.com)
- Now Is a Good Time to Fill Up the Tank, Refinance The Mortgage: As the coronavirus has taken a heavy toll on the economy across Pennsylvania, there have been two bright spots: Gas is cheap, and low mortgage rates mean it could be a great time to do a cash-out refinance. (Citizensvoice.com)
- Is It Time to Refi? Amid Lower Rates, Lenders Say Homeowners Are Jumping to Refinance: The Mortgage Company in Allentown, Pennsylvania has been busy this year making calls and sending out emails spreading the word about falling home mortgage rates. This could be a great time to refinance for cash out if you can save .75% to 1% on your interest rate. (Mcall.com)
- Pennsylvania Jobless Exceed 1 Million Since Outbreak. Accessed at https://apnews.com/f5258035e36ba0e4349763f1b44f77ee
- Cash-Out Refinance Overview. Accessed at https://www.rocketmortgage.com/learn/cash-out-refinance
- Cash-Out Refinance. Accessed at https://www.mortgagecalculator.org/calcs/cash-out-refinance.php
- When and When Not to Refinance. Referenced at https://www.investopedia.com/mortgage/refinance/when-and-when-not-to-refinance-mortgage/