The Brief
- The refinancing boom hits new high as mortgage rates drop slightly.
- Homeowners are refinancing at the highest level in more than a decade as mortgage rates remain at elevated levels.
- Homeowners are cashing out on years of home equity gains as refinancing hit its new high even as mortgage rates remain elevated.
The refinancing boom hits new high as homeowners have more equity in their homes than in nearly 20 years.
Cash-out home refinancing hit nearly a three-year high in the April-June quarter, according to home loan data tracker ICE Mortgage Technology. The boom comes at a time when homeowners are at the highest home equity levels in a generation.
In a cash-out refinance, a homeowner takes out a loan for more than they owe on their mortgage and then keeps the difference in cash to spend on a new car, consumer electronics and even invest or put in a savings accounts. The funds are also used to consolidate debt and finance home improvement projects.
A small drop in interest rates triggered much of the refinancing. “Many assume that any drop in rates is enough to justify refinancing, but the math tells a different story,” said Jake Vehige, president of mortgage lending at Neighbors Bank. “Unless you’re seeing a significant drop, refinancing may not make sense right away.
“The break-even point isn’t just about the rate. It’s about how long you plan to stay in your home, how much you pay upfront and where you live.”
The ICE Mortgage report showed that borrowers in high-cost housing markets like California, Washington, D.C., and Hawaii reap the greatest savings over five years because typically larger loan sizes magnify the impact of lower rates.
The average cash-out refinance in the second quarter resulted in homeowners pulling out $94,000 in home equity, increasing their monthly payment by $590. Homeowners interest rate on their home loan increased an average of 1.45 percentage points, according to the report.
To qualify for a cash-out refinance, homeowners must have at least 20% home equity, own the home for at least six months and have at least a 620 credit score. Borrowers who got a cash-out refinance in the second quarter had an average credit score of 719.
Years of rising home values have made tapping their home equity a tempting option. The median price of a previously occupied U.S. home climbed to an all-time high of $435,500 in June. That’s a 48% increase from just five years ago.
Total homeowner equity in the U.S. hit an all-time high of $17.8 trillion in the second quarter, with $11.6 trillion of available equity for homeowners to pull out by refinancing. Rapid appreciation during the pandemic in Southwest Florida has led many homeowners to refinance.
Cash-out refinances accounted for roughly 60% of all home loan refinances in the second quarter.
Cash out refinancing can be particularly risky for some homeowners who are uncertain about their jobs. However, cash outs can also give homeowners flexibility and security with more cash on hand for emergencies and other expenses as the refinancing boom hits new high.
Borrowers are usually signing up for longer home loans compared to the mortgages they currently hold, extending the mortgage for a number of additional years at higher interest rates.
A second line of credit or a HELOC may be a better option for many homeowners, depending upon each homeowners individual financial circumstances.
Higher mortgage rates have kept much of the U.S. housing market in a slump since the Fed raised its bench-mark rate in 2022. Home sales declined in 2024 nationally to the lowest level in nearly 30 years but have since rebounded in many areas of the country. including the Fort Myers region.
