More refinancers are cashing out equity -- but will the trend continue?

by Ryan Smith11 Nov 2014
More borrowers are refinancing to tap their homes’ equity, according to new data from Freddie Mac.

Borrowers cashed out about $8 billion in home equity through refinancing in the third quarter, according to Freddie’s latest refinancing report. That’s up from $5.6 billion in the second quarter and $6.1 billion in the third quarter of 2013. The number of refinancers taking cash out was also up – 28% in the third quarter compared to 21% in the second quarter and just 14% in Q3 of 2013.

The recent number is still low compared to the peak of cash-out volume in the second quarter of 2006, when borrowers took $84 billion out. At that time, the height of the housing boom, 89% of refinancing borrowers took cash out, according to Freddie Mac.

Cashing out home equity can be a great way to pay down debt on higher interest loans or pay big expenses – but the uptick in refinancers cashing out their home equity will probably be short-lived, Freddie Mac chief economist Frank Nothaft told MarketWatch.

“As we see gradual appreciation (in housing markets) we’ll see some gradual uptick in the dollar amount of cash-out refis,” Nothaft said.  But, he added, interest in cashing out will dwindle as rates move higher, since people won’t want to refinance out of an interest rate of 4% or lower. Instead, those wanting to take equity out of their homes might consider using a home equity line of credit or closed-end home equity loan, “so you can preserve that first mortgage with the cheap mortgage rate,” Nothaft told MarketWatch.