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.
More borrowers are refinancing to tap their homes’ equity, according to new data from Freddie Mac.