Cash-out refinancing is on the rise.
With mortgage rates well below 4%, it’s no surprise refinancing has surged as of late. But according to a new report, homeowners aren’t just jumping in solely for low rates. They’re also taking the opportunity to cash in on billions of dollars of home equity.
A new report from property data firm Black Knight shows that American homeowners took more than $36 billion out of their home equity last quarter—the largest amount in about 12 years. In total, cash-out refinances made up 52% of all refinancing activity in Q3, up 24% from just one year prior.
Across the board, the country’s 45 million mortgage holders are sitting on trillions in tappable home equity—about 5% more than this time last year and just 1% below the all-time high. Of those 45 million homeowners, a whopping 65% can actually keep their same interest rate or even reduce it by tapping their equity today.
Ben Graboske, data and analytics president at Black Knight, says the demand for cash-out lending will continue in the near future—possibly even increase—especially if interest rates rise.
“Given that tappable equity continues to grow—$6.2 trillion as of Q3 2019—and the continued headwinds facing the HELOC market, this is a segment lenders and servicers may likely focus on in coming months,” Graboske said. “Any upward movement in rates would likely only drive the cash-out share of lending higher.”
Overall refinance lending hit an 18-year low in the last quarter of 2018. Since then, activity has almost doubled. The bulk has stemmed from homeowners looking to improve their interest rates or loan terms. In Q3, refinance loans of this type were up 500% over last year.
Even recent homebuyers from 2017, 2018 and early 2019 are getting in on the game, whittling down their interest rates in the process. In fact, 2018 loans accounted for a third of all refinance activity last quarter, while year-to-date 2019 mortgage loans made up 17%.
These cohorts are seeing rate cuts between 0.7% and 0.9%, on average. Only around one in five is opting to take cash-out during their refinance.