Consumers view their mortgage now as a financial instrument, and depending on their financial condition, may seek a cash-out refinance. They may spend it to buy a car, add on to their house or use it for college. I think we'll see a steady stream of that.
Quotes about cash-out (4 Quotes)
We see from the cash-out analysis that the overwhelming majority of these borrowers were extracting home equity rather than trying to reduce their monthly payments.
A lot of people who over-improved did a cash-out refinancing when rates were at a low, expecting housing prices to continue going up and up. But in some places, like the Midwest, prices have already stopped climbing.
The refinance share of mortgage applications in the fourth quarter of 2005 was 45 percent while the average rates on 30-year fixed-rate mortgages climbed 0.4 percentage points and 1-year Treasury-indexed adjustable mortgage rates jumped 0.6 percentage points from third-quarter averages. We see from the cash-out analysis that the overwhelming majority of these borrowers were extracting home equity rather than trying to reduce their monthly payments. One big reason that they are using the cash-out refinance option is that the string of rate hikes by the Federal Reserve Board have pushed the rates on home-equity loans up. Home-equity loans are typically linked to the prime rate, which currently is at 7.5 percent. In contrast, the average rate on 30-year fixed-rate mortgages is presently near 6.25 percent.