Buyers Tap into Home Equity, Even as Mortgage Rates Rise
As mortgage rates rise, buyers continue to tap into home equity by using refis to extract cash from their homes.
According to Freddie Mac, over 80 percent of buyers who opted to refinance during the third quarter used the “cash out” option, collectively withdrawing $14.6 billion (U.S.) in equity from their homes. This figure marks the highest share of cash-out refis since the housing crisis of 2007.
The trend also reflects the state of the U.S. economy, which experienced a sharp rise in home values over the past nine years. During the same period, worker pay rose at a much slower pace. The result is that homeowners are using their homes as a source of wealth to make up for the lack of pay raises at work.
“Home equity is the big pot of gold,” said Sam Khater, chief economist at Freddie Mac.
The increase in cash-out refis also reflects the impact of rising mortgage rates on the housing market. Higher rates make buying a home more expensive and slows down home sales. Rate-based refinances, which offer homeowners lower rates on their mortgages, are also declining, which is why homeowners are turning to cash-out refis.
According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage was 4.81 percent as of November 21, 2018, which represents an increase of nearly 1 percent from the end of 2017.
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