The Mortgage Bankers Association reported that 44.8% of all mortgage applications last week were for refinancing activities (versus new home purchases). Implications? Considering mortgage rates have been at historic lows for the past couple of years, it suggests that homeowners, “aren’t cutting their interest rates at all; rather, they’re just increasing their debt.”
Borrowing against your home looks, to many people, like a no-brainer.
But whether it really is depends on how that freed-up cash is used. So here’s a rule of thumb: Long-term borrowing should be used only for long-term needs.
For example, it can make sense to refinance to get cash to put an addition on your home that you’ll enjoy for decades.
It’s not OK to pay interest for 30 years to fund this evening’s dinner out, this winter’s ski trip or a fancy car that will immediately start losing value. With the interest included, that $40,000 car financed with mortgage debt could cost more than $80,000.