The Return of Cash-Out Refinancing

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The first quarter of this year has seen the third consecutive period where more than half of refinances were cash-out transactions, allowing homeowners to tap into the equity in their home.  A lot of homeowners are finding that with current low mortgage rates, it’s a better time than ever to refinance.

Down from the fourth quarter of last year, the net dollars of home equity withdrawn from refinancing of conventional, prime-credit home mortgages is at $7.7 billion.  This is minuscule compared to the $84 billion in equity withdrawn in the second quarter of 2006.

Analyzing the savings from borrowers who refinanced this past quarter, they cut an average of 1.2% off of their interest rates.  This came out to an average of 24%, or $2,500 in savings on a 12-month period and a $200,000 loan.

These refinance borrowers are intending to reduce their payments while paying down principal faster.  Roughly a third of these borrowers have shortened their loan term. No wonder this news is gaining interest and commotion.