Cash-Out Loan Refis Rise 25%
U.S. mortgage refinancings in which borrowers received cash rose 25% in the second quarter as interest rates fell to the lowest level in more than a year.
So-called cash-out refis rose to $212.3 billion from $169.6 billion in the first quarter, Freddie Mac said in a report Tuesday. The cash-out share was 74% of all refinancings, a 4 1/2 -year high, according to the No. 2 mortgage financier. The data cover refinancings with a balance at least 5% higher than the original loan.
Cash-out refinancing supports consumer spending, which accounts for two-thirds of the U.S. economy, as owners convert home equity into money to spend on home renovations, cars or vacations, said Frank Nothaft, chief economist at Freddie Mac.
“At this point, most of the people who wanted to refinance solely for a lower rate have done so,” he said. “Now we’re seeing a disproportionate share of folks who want to refinance and do a cash-out at the same time.”
The equity extracted from homes this year probably will be 18% of the total refinanced amount, Freddie Mac said. That will result in about $161.6 billion of home equity being turned into cash this year, the highest ever. In 2003, homeowners extracted a record $146.9 billion of equity.
The average 30-year fixed rate was 5.77% last week, up from a 15-month low of 5.53% during the week ended July 1, according to a weekly survey conducted by Freddie Mac. For the year, the rate probably will average 5.68%, the lowest ever, according to a July 19 forecast by Fannie Mae, the largest mortgage company.
About a third of the cash extracted from home equity is used for home renovations, about a third for debt repayment and the rest on items such as cars and vacations, Nothaft said.
Homeowners who refinanced mortgages during the second quarter lowered their borrowing costs by an average 0.67 percentage point, the report said.