Refinancing in California
Are you ready to refinance in the Golden State? Here is some vital information you may want to know before applying for financing.
California Refinance Stats
California has a population of 39.2 million (July 1, 2021), 14.5 million housing units (July 1, 2021), 13.1 million households (2016-2020), and a median value of owner-occupied housing units of $538,500 (2016-2020), (census.gov).
According to Bankrate data, as of July 26th 2022, the average rates in California were 5.680% APR for a 30-year fixed and 4.930% APR for a 15-year fixed. (These rates vary each day depending on the market, the borrower’s credit score, zip code, property value, among other factors, and may not be available today).
As of July 2022, California’s average 30-year fixed rate is 0.160% APR higher compared to the 5.520% APR national average rate for a 30-year fixed rate mortgage (Freddie Mac), making it more expensive on average to refinance in California compared to the US average.
Since rates in California have risen, especially since the low rates in 2020-2021, it’s now harder for the average person to qualify for a refinance. For many people it may not make sense to refinance if the current rate is higher than their loan’s, unless they need cash-out. Yet, getting a lower rate on a mortgage is not the only reason why one may want to refinance.
Refinancing is a way to get extra cash for the following reasons: paying off a different high-interest loan or debt (credit card, student loan, etc), improving their main property, funding a large expense such as a boat, vacation, wedding or divorce, and people even refinance to buy other properties or buildings.
Sources: https://www.freddiemac.com/pmms/pmms30, https://www.census.gov/quickfacts/CA
Top Reasons to Refinance
Get a Lower Monthly Payment
It is possible that a higher interest rate can result in a lower payment if the amortization term increases.
Get Cash out to pay off High-Interest Debt
This can result in a lower monthly outlay of cash.
Get Cash out to Renovate Your Property
Improving your property can create real value either just to enjoy or for resale.
Get Cash out for Retirement
You have worked hard for your home, maybe it’s time for your home to work for you. By refinancing you can put that extra money toward your retirement plan.
Eliminate your Mortgage Insurance
If you bought a home with mortgage insurance it might make sense to refinance in to a new loan.
Maximum LTV for cash-out refinance
Loan-to-value ratios (LTV) for cash-out refinancing
A cash-out refinance allows you to get cash from your home’s equity by replacing your old mortgage for a new mortgage for a higher amount. Refinancing your current loan your total finance charges may be higher over the life of the loan. But many homeowners use cash-out refinances to pay for home improvements and college educations or to consolidate debts like credit cards or personal loans.
What is a maximum loan-to-value ratio (LTV)?
The maximum loan-to-value ratio (LTV) of a cash-out refinance is important because it affects whether you qualify for refinancing as well as how much money you may be able to borrow from your home’s equity. LTV is a percentage calculated as follows:
Your current mortgage loan ÷ appraised value of the home = your loan-to-value ratio
For example, if your current mortgage balance is $150,000 and your home is worth $300,000, then your loan-to-value ratio is 50%. (That is $150,000 ÷ $300,000 = 0.50 or 50%.)
Different loan types have different maximum LTV values for their cash-out refinances. We offer cash-out refinancing with conventional, VA, and FHA loans.
What is the maximum LTV on a conventional cash-out refinance?
The maximum loan-to-value ratio for a conventional cash-out refinance is often 80%. This means your LTV can be no higher than 80% if you want to qualify for cash-out refinancing with a conventional loan. Take a look at this sample calculation:
|Current mortgage balance||$125,000|
|Sample maximum LTV||0.80 or “80%”|
|Maximum new mortgage balance||$220,000 ($275,000 x 0.8)|
|Maximum cash available||$95,000 ($220,000 – $125,00)|
The homeowner in this example may qualify for a cash-out refinance for up to $95,000 in cash. Keep in mind you’ll need to meet other credit, income, and financial requirements to get your loan approved.
What is the maximum LTV on an FHA cash-out refinance?
The maximum loan-to-value ratio for an FHA cash-out refinance is also often 80%. Like with conventional loans, you’ll also need to meet credit, income, and financial requirements to get your FHA cash-out refinance application approved.
What is the maximum LTV on a VA cash-out refinance?
Veterans, active-duty military personnel, and surviving spouses with VA loans may qualify for VA cash-out refinancing with a 90% max loan-to-value ratio. Let’s look at the same sample homeowner as above with a 90% maximum LTV:
|Current mortgage balance||$125,000|
|Sample maximum LTV||0.90 or “90%”|
|Maximum new mortgage balance||$247,500 ($275,000 x 0.9)|
|Maximum cash available||$122,500 ($247,500 – $125,000)|
The VA homeowner in this example might be eligible to receive up to $122,500 in cash after refinancing – more than they could get with a conventional or FHA cash-out. Most VA homeowners will still need to pay a VA funding fee in addition to their closing costs when refinancing. And they will need to meet credit, income, and financial requirements to get their loan approved.
Speak to one of our Loan Advisors about cash-out refinancing
Borrowing money against the value of your home can come in handy if you have major home renovations to make, are looking to consolidate debts, or are pursuing additional education to further your career.
Get Started online or talk to one of our Loan Advisors about applying for a new mortgage today!
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