Cash-Out Refis Hit Highest Level Since ’07
“Oh no. Here we go again!” – Everyone who only read the headline
Orla McCaffrey over at The Wall Street Journal writes that cash-out refinancings in 2020 hit their highest level since the financial crisis.
– How Much? Homeowners across the country, “cashed out $152.7 billion in home equity last year, a 42% increase from 2019 and the most since 2007, according to mortgage-finance giant Freddie Mac.”
– Why was this popular? Two reasons 1) Mortgage rates on a 30-YR fixed fell below 3% for the first time and 2) “The median existing-home price rose to about $310,000 in December, an increase of almost 13% from December 2019”
Why this is different from 2008? Two reasons 1) “The median credit score of new refis last year approached 800, near the top of the scoring range” and 2) “90% of borrowers who refinanced chose to extract cash. Last year, about one-third of refinancers chose the cash-out option”
It should also be noted that one of the big problems leading up to the housing crash was people using cash-out refis to spur more purchasing. Some were buying car and boats. Others were buying more real estate. The difference in 2020, many seemed to be cashing out to reduce or pay off debts