Cash-Out Refinancing at Highest Level in 16 Years

Maybe we didn’t need to explain what comprised cash-out refinancing. If last quarter is any indication, millions of Americans are familiar with the option.

According to Freddie Mac, U.S. homeowners took cash out of their homes in the third quarter at the highest rate in 16 years, spurred by high costs on other types of loans.

In the quarter, 89 percent of Freddie Mac-owned mortgages that refinanced got home loans that were at least 5 percent higher than the original balances.

“High demand for cash extraction through refinance is being driven by the high cost of home improvement loans and home-equity lines of credit - that is, the cost of alternative financing - and still-strong demand for home improvements,” Amy Crews Cutts, Freddie Mac deputy chief economist, said in a release.

As we’ve also noted, a major wave of adjustable-rate mortgages created in the past few years are facing their first reset, giving borrowers the incentive to refinance and take additional cash, Freddie Mac said.

The third quarter share of cash-out refinancing is up from 88 percent in the second quarter. Borrowers are faced with the prospect of defaulting on their loans if they don’t find sources for money somewhere.