Whether it’s home renovations, consolidating debt, going on that dream vacation you’ve been putting off forever, or paying for your kid’s college education, or maybe even their wedding, there are plenty of reasons homeowners tap into their home equity with cash out refinances.
And now, with mortgage rates dropping under 2% on 15 year fixed loans, and under 3% on 30 year mortgages, the time to cash in on home equity has never been better. Which is why, according to the good folks over at Mortgage Orb, rate locks rose by 1.3% this past August. And that number was significantly impacted by cash out refinances, which saw a jump of 7.6% in closings.
For the summer months, cash out refinances saw a 41% increase overall, which is a significant indicator that homeowners are taking advantage of interest rates at lows we’ve simply never seen before. Push this metric back another year to 2020, and we see cash out refinances are up over 30% from where they were at that juncture. As long as rates between 1.85% and 3% are available to homeowners, this trend should continue.
Refinance Taking Lion’s Share of the Market
The summer jump in cash out refinances pushed its market share over 50% for the first time since February of this calendar year. All this while rate and term refinances have plateaued, actually seeing a decrease of .5%. Still, if you’re looking to execute a rate and term refinance on your home, now is the time. Less than a decade ago, it was nearly impossible to lock in a rate under 5%. Now with rates under 3%, or even 2% in some instances, one has to wonder, just how long will this last?
Home purchase mortgages have also stagnated, with a 0.8% drop in July. Home prices have been on the rise, with a hot real estate market, wild bidding wars, and many purchasers forced to go over the asking price by tens of thousands of dollars to close deals. Inventory has thus been scarce. But again, the refinance market has never been hotter.
Black Knight, which tracks mortgage data, has been monitoring this situation closely. Their president, Scott Happ, attributes the rise of the cash out refi to the unbelievably low interest rates we’re seeing across the board on mortgages. As Happ put it, these low APRs “seem to have been enough to spur some high-credit-score and high-balance borrowers to refinance, as average credit scores rose along with the non-conforming share of the market. The rise in cash-out lending is hardly surprising given the extraordinary growth we’ve seen in tappable equity this year. We’ve now seen cash-out activity increase for three consecutive months, and with $173,000 in equity available to the average homeowner with a mortgage and home prices still climbing, there is still room in the market for growth. With equity levels at record highs and interest rates broadly expected to tick upward in coming years, cash-out lending is likely to play a much larger part in the overall refinance market.”
How To Cash Out On Your Home
So what’s the first step if you’re thinking of cashing in on your equity? We recommend a mortgage comparison site like LendGo. By bringing multiple lenders to the table, sites like LendGo put borrowers in the driver’s seat, as the mortgage lenders have to compete for the homeowner’s business.
Always be ready to negotiate. Homeowners can often get even lower rates than what they initially believe they’ll qualify for. If you can pay any credit cards down before applying, do it! The better your credit score, the lower your rate.
And just think, in a few short weeks, you could be swimming in home equity cash. That new kitchen, bathroom, back deck or pool, could be yours for the taking. Or you could be in Fiji or some other exotic locale with all that sweet home equity cash. Whatever your heart desires, your home equity just might be able to grant its wish!