House or ATM? Cash-out refinancings spiked in 2020
US homeowners withdrew $153B in home equity last year
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.
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.
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