NerdWallet's Smart Money Podcast
Smart Mortgage Strategies: From Refinancing to HELOC
Mon, 09 Dec 2024
Learn how to refinance your mortgage, manage credit card debt, and navigate home equity with practical tips and strategies. When is the right time to refinance a mortgage? How can you use a HELOC or home equity to your advantage? Hosts Sean Pyles, freshly returned from time off to focus on the CFP exam, and Sara Rathner discuss mortgage refinancing, home equity, and credit card debt management to help you make smarter financial decisions. But first, they share an update on Sean’s CFP journey and discuss what to do about recent changes in interest rates, including how they may impact your finances and how you can proactively respond to them. Then, mortgage Nerd Kate Wood joins Sean and Sara to discuss mortgage refinancing, sharing tips on determining the best time to refinance, understanding the costs, and calculating the break-even point. They also discuss HELOCs and home equity, exploring when to lock in a HELOC rate, the difference between paying down and paying off a HELOC, and practical ways to decide whether a HELOC or refinance is the better choice for your situation. Learn more about refinancing a car loan in NerdWallet’s writeup here: https://www.nerdwallet.com/article/loans/auto-loans/how-to-refinance-your-car-loan Use NerdWallet’s free mortgage refinance calculator to determine if refinancing can help you achieve your financial goals: https://www.nerdwallet.com/calculator/refinance-calculator To help you choose among mortgage lenders, NerdWallet’s editorial team has picked some of the best in a variety of categories to help you find the home loan that's right for you: https://www.nerdwallet.com/best/mortgages/mortgage-lenders In their conversation, the Nerds discuss: interest rates, mortgage refinancing, mortgage refinance calculator, HELOC vs refinance, CDs, home equity loan, refinance costs, refinance tips, refinance break-even point, HELOC rate lock, HELOC payoff, refinancing options, how to refinance your mortgage, refinancing costs, refinancing calculator, mortgage tips, HELOC draw period, refinancing with low equity, credit card payoff strategies, refinancing pros and cons, refinancing 101, mortgage refinance tips, home equity explained, refinancing vs HELOC, mortgage interest rates, refinancing advice, HELOC tips, home equity advice, refinancing myths, how to save on refinancing, mortgage payment calculator, home equity tips, refinancing calculator tips, refinancing interest rates, managing credit card debt, debt payoff strategies, refinancing strategies, HELOC strategies, and what is a home equity line of credit. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [email protected]. Like what you hear? Please leave us a review and tell a friend. Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: What are the recent changes in interest rates?
Falling interest rates, stubborn inflation, looming financial goals, all three are intertwined in ways that can get a little messy or confusing. This episode, we're going to help you figure out how to take advantage of this moment to get what you want from your money. Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles.
And I'm Sarah Rathner. And I'm so happy that Sean has returned to me. I'm back.
After five weeks away on my sabbatical, I've returned for Sarah, for you, and for all of our listeners.
I'm so happy. OK, we have been on a journey with you now for some time. Do you have some professional news that you would like to share with our listeners?
I actually do. I spent the first half of my sabbatical studying very hard for the certified financial planner exam, which runs just a few times a year. So I planned my sabbatical around taking it for the most part. And then I sat for the exam, all six hours of it. And I passed. Did I have you on the edge of your seat there?
Well, I actually already knew.
Yeah, you got the inside scoop.
And we texted a little bit back and forth while you were away because the news spread like wildfire amongst our colleagues. But obviously, all of our listeners need to know this stuff as well.
I am very relieved that it's over and I'm excited to use all of my newfound knowledge to help listeners answer their money questions. I should note that I am not yet a CFP professional. I am a candidate for certification. There's some administrative stuff that has to happen before I'm actually certified. But for now, the hardest part is over with.
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Chapter 2: When should I consider refinancing my mortgage?
And next year, we want to talk with even more of you live on the podcast.
Whether you want help sorting out your budget, or you're just trying to figure out the best way to plan an international vacation this year, or you just want to hang out with me and Sean on the podcast. We're friendly. We want to talk to you. So let us know. One more time. Here's how to do that. Leave a voicemail or text us on the nerd hotline at 901-730-6373.
Or you can email us at podcast at nerdwallet.com.
We can't wait to talk with you. This episode's money question segment is coming up in a moment. Stay with us. We are back and answering your money questions to help you make smarter financial decisions. This episode, we are taking on a couple listener questions about refinancing, something that's on a lot of folks' minds as the Fed begins easing its interest rate policy.
And joining us in this conversation is mortgage nerd, Kate Wood. Kate, welcome back to Smart Money.
Thanks so much for having me again. Let's get to the first question, which comes from a listener's email. Here it is. Could you please cover in detail how to know when to refinance everything about refinancing, like different types with different costs upfront or lender credits to make a no cost, et cetera?
I think a lot of us with higher interest mortgages are starting to feel like we should have a plan to jump into refinancing. I think you covered this in the past already, but a bit less comprehensively and tied to a different time and set of facts.
So we're going to start with doing a little refinancing 101. We're going to get really, really basic and ask, what even is refinancing? It's when you swap your current loan, whether for a house or a car, student loans, etc., for a new loan that better suits your current financial goals. That usually means a lower interest rate, monthly payment, and generally better terms.
But when is a good time to refinance? Well, if current interest rates are lower than the interest rate on your loan, you might want to look into refinancing. But refinancing isn't as simple as just swapping out your loan. You will have to jump through some hoops, and how you refinance depends on what kind of loan you have.
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Chapter 3: What are the costs associated with refinancing?
So with a cash out, you borrow a larger amount than what's currently owed on your mortgage. Then at closing, you receive the difference between that larger sum and your current balance cash. But because you've now got a larger loan amount, even if you lower your interest rate with the refi, your monthly principal and interest payment might be about the same or potentially higher.
Can any kind of mortgage be refinanced or are there limitations?
Any kind of mortgage can be refinanced, though if you're refinancing a government-backed loan, like a VA loan or an FHA loan, you might see other refi types available to you, like the FHA Streamline or the VA EARL, which is I-R-R-L. These are still rate and term refinances, but they have slightly different requirements.
With any of these, again, the key requirements are that you're a strong candidate and you have sufficient home equity. One thing that's worth mentioning is that sometimes a lender will say, hey, you know what? We can skip the appraisal and save you some money.
But if you're living in an area where prices just keep rising, you probably want to get that appraisal instead of the lender going off of, say, what you paid for the home. The appraisal is how the lender verifies your home's current value, and so if your home's value has gone up since you bought it, you might have significantly more equity than you realized.
That's also really important because if you have a conventional loan and you've been paying for private mortgage insurance, refinancing could potentially kill two birds with one stone if your home has appreciated enough in value that you not only qualify for the refinance, but you also have enough equity to cancel your PMI, and you've got the appraisal backing up that valuation.
Let's get to the listener's question about making a plan to refinance. Say they know what kind of refi they want, they've scrounged up some cash, and they've made sure their credit is in a good position. What's the first thing they should do?
Step one, start researching lenders. You do not have to work with the same lender that you bought the house with. You don't have to work with the lender that services your loan. Same as with when you bought a house, different lenders are going to offer different interest rates. And to get the best deal at NerdWallet, we always recommend getting rate quotes from at least three different lenders.
The mortgage nerds on my team and me have reviewed more than 50 mortgage lenders on nerdwallet.com if you're looking for a place to start. We also have lender roundups that give you lists of some of our top picks in different categories, like refinancing or cash out refi.
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