When to refinance?

Question

Hi all, thanks in advance. I bought a property last October- 13% rehab bridge loan to purchase and renovate. Completed the reno and did a cash out refinance in June 2024 to 8% and added an ADU with the cash out. I planned to do a piggyback HELOC to have access to quick capital in case a good next deal came along but it has been a long drawn out process and right at closing they decided they needed a new appraisal. I'm rethinking my strategy. Since rates have gone down considerably, should I plan to refinance again as soon as next year? If that was the case I would let the in-process HELOC go, and shoot for a refi and HELOC at the same time next year to avoid duplicating fees. I don't really want to get into another project until next year anyway (I'm tired lol). What are your thoughts on my specific scenario, and predicted refi rates in general?

Hannah Joy · Answer

Thanks @Jacqueline Wright! In the end I was forced into the HELOC. I had applied for the CALHFA ADU grant and clarified options in the beginning. However, the escrow servicer reneged on the options at the last moment and decided they would only reimburse a HELOC. I am frustrated about that but it will be worth it to obtain the grant. Thank you for your clear answer though!

Jacqueline Wright · Answer

It sounds like you're in a good position to evaluate your options carefully. Here are some insights based on your scenario:

Refinance Timing: Given that rates have been dropping and you're considering a potential refinance for next year, holding off on refinancing until then makes sense if you're not planning another project soon. Refinancing next year would likely allow you to lock in a potentially lower rate than the 8% you're currently at, especially if the market conditions continue to favor lower rates.

Avoid Duplicate Fees: You're right in thinking about avoiding duplicate fees for the refinance and HELOC. Refinancing both at the same time could save you money in the long run and streamline the process, as you'd only have to go through appraisals and closing costs once.

HELOC vs. Refi: The piggyback HELOC is a good tool for quick access to capital, but since it's been delayed and you're already tired, it might be worth waiting for a combined refi and HELOC. This way, you'll have access to liquidity without the headache of managing separate loans and fees.

Predicted Refi Rates: While no one can predict rates with absolute certainty, the general consensus is that rates may stay lower or remain stable in the short term, barring any economic shifts. If you’re targeting a refinance for next year, it could be advantageous to wait and monitor the market.

Overall, if you're not in a rush for another project and don't need immediate access to more capital, it might make sense to hold off on the HELOC and refinance together in 2025. This way, you optimize your costs and leverage lower rates when possible.

Patrick Roberts · Answer

This is exactly it - it is impossible to know the future. For almost two years now, people have been predicting rate cuts that were right around the corner and were a sure thing. If anything, we're now seeing data that suggests there isnt much reason for rates to drop significantly any time soon. Rate drop predictions are largely a bunch of hopium from Barry, the MBA, and the NAR looking for a bailout.

Erik Estrada · Answer

It's very difficult to time the market. So many LOs were preaching mortgage rate cuts, this time around, and now I am seeing rates still the same, if not even slightly higher than what they were a few months ago.

You are much better of preparing for the worst case scenario and adjusting your strategy accordingly.

Zane Cress · Answer

What is the cost of your Refi? What fees are the charging you? If it costs you $20k to do a refi right now is that worth it on the payment difference? If you are willing to wait we are most likely going to see 100 basis point cut over the next year and a reduction in the spreads that lenders are working off of. These two factors will get investor rates down to a reasonable level. I think waiting until October or November would be ideal. The Housing Wire Daily podcast has great insights into rate movement and forward estimates. Sometimes a slow and steady plan is better than being ready to jump on a deal. There are millions of houses and just as many deals, there is always another great deal just around the corner.

Emanuele Mayer · Answer

My predictions is that rate will go down after holiday, if you want strategy let talk about it

Derek Brickley · Answer

Hey Hannah!  Good question, I think the biggest question will just be your overall timeframe and how quickly you want to get everything done.  Regardless, rates will taper down next year, so I would anticipate another refinance to be beneficial at that point. With where prime is for HELOCs unless you had a deal you could get off that line quickly, it might make more sense to hold off realistically.  If the numbers work, then that's all that matters, though so hard to say for sure.

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