House or ATM? Cash-out refinancings spiked in 2020

US homeowners withdrew $153B in home equity last year

(iStock/Illustration by Kevin Rebong for The Real Deal)
(iStock/Illustration by Kevin Rebong for The Real Deal)

Americans treated their homes like ATMs last year, withdrawing $152.7 billion amid a cash-out refinancing spree not seen since before the 2008 financial crisis.

Fueled by historically low interest rates, cash-out refinancings rose 42 percent year over year, the Wall Street Journal reported, citing data from Freddie Mac.

Read more

Home Mortgage Applications Surge Due to Refinancing
Residential
National
Low rates give home refinancings a boost
The median existing-home price exceeded $300,000 for the first time last year (iStock)
Residential
National
Vicious cycle creates “huge supply crunch,” pushing home prices up

Mortgage rates fell below 3 percent for the first time last year, making refis a no-brainer for many homeowners. Last year, there were $2.4 trillion refinancings, according to mortgage data firm Black Knight.

Sign Up for the undefined Newsletter

For some homeowners, cash-out refis were a financial cushion in a financially tough year. Others withdrew equity to be able to buy bigger homes. Many took out cash for major home renovations, particularly given low inventory nationwide.

“They can’t find a house to move into, so they’ve basically decided to make their homes work long-term,” said Eric Henning, a mortgage loan officer in Washington.

Cash-out refis do have a downside: They reset the clock on 30-year mortgages, meaning owners could pay additional interest. There can also be tax implications.

But economists don’t consider today’s cash-out refinancings as risky as in the run-up to the 2008 crisis: home prices are rising now, while values plummeted then.

[WSJ] — E.B. Solomont

Recommended For You