More Home Owners Turn Equity Into Cash

Home values are on the upswing, and home owners who are becoming equity-rich are taking advantage of their property’s increasing worth. Cash-out refinances surged 68 percent in the second quarter compared to a year ago and have reached the highest volume in five years, according to Black Knight Financial Services.

“People realize that refinancing these funds is extremely inexpensive and that rates will eventually rise, so they’re capitalizing on the strength of home-price appreciation,” says Ben Graboske, senior vice president at Black Knight Data & Analytics.

Borrowers today are also using more restraint. The average loan-to-value ratio of today’s cash-out refinancers is 68 percent, which means borrowers have leveraged 68 percent of the home’s current value. That marks the lowest level in a decade.

Source: “Homes as ATMs: It’s Starting Again,” CNBC (Oct. 5, 2015)

A Cost-Saving Move for 7.1M Home Owners

As of February 2015, there were about 7.1 million potential refinance candidates. In February 2014, about 4.1 million borrowers were found to be able to benefit from refinancing their mortgage, according to Black Knight Financial Services’ research.

“Through a combination of declining interest rates and increased equity among borrowers driven by home price increases, an additional three million borrowers now meet the same broad-based eligibility criteria as compared to one year prior,” says Trey Barnes, Black Knight’s senior vice president of Loan Data Products. “Of course, this population is rate-sensitive; in fact, it was largely the decline of 60 basis points in the prevailing 30-year interest rate that resulted in the year-over-year increase in potential refinance candidates.

Researchers also found that lower credit score borrowers – those with credit scores below 620 – are refinancing at the lowest level on record. “As a result, the average loan age for this group is 98 months, as compared to just 38 months and less for borrowers with credit scores of 750 and above,” the report notes.

Source: Black Knight Financial Services