More Owners Tap Into Equity, Conservatively

February 4, 2016

As home values rise, more home owners are tapping into their equity with cash-out mortgage refinances. But they’re not taking out nearly as much as they did in the past.

The average amount taken out by owners was more than $60,000. According to Black Knight Financial Services, the average loan-to-value ratio after the refinance was 67 percent – the lowest level ever. On average, borrowers then left 33 percent of equity still in the home after the cash-out refinance.

Forty-two percent of mortgage refinances last fall had borrowers who took cash out of their homes and did not refinance just to get a lower interest rate – the highest share since 2008, CNBC points out.

"All totaled, there was $64 billion in equity tapped via cash-out refinances over the past 12 months, the highest dollar amount for any equivalent 12-month period since 2008-2009," says Ben Graboske, Black Knight senior vice president. "Even so, this amounted to less than 2 percent of available equity being tapped. This is slightly below the post-crisis norm, and 80 percent less than the total amount of equity extracted from the market in 2005-2006."

Lenders are also being more stringent about who can do cash-out refinances. Borrowers who did a cash-out refinance had an average credit score of 748.

"The people that are transacting have passed the credit screens,” Graboske says. “Borrowers are taking out what they need. It's the mindset right now. Use what you need and not more. The only other explanation would be a lender level credit overlay, but these levels would be unprecedented. There is definitely money being left on the table."

The money that is taken out most often goes toward paying for home repairs, education costs, or medical bills. Borrowers are no longer using it for vacations or extravagances like they did a decade ago, CNBC reports.

“It seems they would rather use their home as a savings account, not a checking account,” CNBC reports.

Source: “Owners Cautiously Taking Cash Out of Homes,” CNBC (Feb. 1, 2016)