With home values on the rise in America, cash-out mortgage refinances (frequently referred to as “cash-out refis”) are also surging.
But while more and more homeowners are taking cash out of their homes, they’re doing so in a rather cautious manner. In fact, some analysts say they’re pulling the most conservative amounts in American history.
Some of this is no doubt a conservative, cautious reaction to some very hard lessons learned by many prior to the historic housing crash of the previous decade, when millions of borrowers fell woefully “underwater” on their home loans and home prices plummeted. The end result was millions of homes landing in foreclosure, sometimes resulting in entire subdivisions and communities morphing into “ghost town” status.
Of course, lending standards have tightened since then, but borrowers themselves are also inherently more risk-averse in 2016.
The activity level, however, is quite high.
According to Black Knight Financial Services, a full 42 percent of mortgage refinances in the fall of 2015 involved borrowers taking cash out of their homes. That marked the highest such figure since 2008, per the Black Knight data and analytics division.
The average cash-out amount was more than $60,000, and the average loan-to-value ratio after the refinance was just 67 percent – which represents the lowest such figure on record. Borrowers also left 33 percent equity remaining in their homes, on average.
Black Knight analyst figures also revealed there were $64 billion in total equity tapped via cash-out refinances over the past 12 calendar months – the highest dollar amount for any equivalent 12-month period since 2008-09, when the American financial crisis truly began to deepen.
Consumers today are saving more than they were in recent years, even though the financial crisis was much deeper and more acute just a few years ago. According to the U.S. Department of Commerce, the savings rate in December of 2015 actually rose to the highest level in three full years. Spending remained flat during this same period.
The average credit score of borrowers who are opting for cash-out refinances is fairly high at 748 – suggesting many lenders are still quite risk-averse themselves.
The Federal Reserve has also played a strong role here, having kept interest rates at near zero for seven years up until the final days of 2015.
It all adds up to many borrowers deciding to take out home equity loans – but taking only what they need, and often taking out full amortizing loans. This means they start paying back those loans immediately, with monthly principal payments on top of interest.
Also of note is what many of these borrowers are using their home equity loans for. Rather than pricey, exotic vacations or luxury extravagances in the days prior to 2008, the equity is typically being used for necessities like home repairs, medical costs, and education fees. In other words, much more practical and utilitarian purposes than indulgent and extravagant splurges.
At Impac Mortgage Corp. Wholesale, we have a variety of innovative and flexible products to present to borrowers who are looking to execute a cash-out refinance on their homes. Our Texas Cash-Out Refinance applies to owner-occupied properties located in the great state of Texas with new or existing Texas Section 50(a)(6) loans. A variety of Fannie Mae and Freddie Mac loans, along with our innovative array of AltQM™ loan products, are eligible for Texas Section 50(a)(6) equity cash out.
Our AltQM™ suite of products are also ideal for Millennial borrowers, many of whom are struggling with unprecedented student loan debt. Impac Mortgage Corp. Wholesale serves as a strong and versatile partner for those of you who are looking to lend to this ever-growing and increasingly powerful Millennial market segment.