Here’s an overview of cash-out refinances and how homeowners are using them
A cash-out refinance is when a homeowner pulls out part of the equity they have in their property to use for something else important in their life.
As you can see from the chart at 0:35 in the video, cash-out refinances are not a new trend. However, you’ll also see the huge jump in cash-out refinances back during the real estate bubble from 2005 to 2007.
You’ll also see that cash-out refinances are a little low so far this year, but experts expect them to increase from 2020’s numbers.
“Homeowners use cash-out refinances for a number of different reasons.”
According to Bill McBride of Calculated Risk, “For Q1 2021, the Net Equity Extraction was $41 billion, or 0.8% of Disposable Personal Income. This is nothing like the amount of equity extraction during the housing bubble as a percent of DPI.”
During the last housing bubble, people were pulling out 9% of their DPI. When you compare that 9% to the 0.8% expected in 2021, that’s a huge difference. That’s why we don’t need to concern ourselves with worrying about how much equity homeowners are pulling out right now.
That brings us to the question, “Why do homeowners use cash-out refinances?” Many of them find they want to put that equity in their home to work for them. Some will use it to put the kids through college, start a business, or even invest in real estate by buying a rental property.
If you have any questions about cash-out refinances or how one could work in your favor, don’t hesitate to reach out via phone or email. I look forward to hearing from you soon.
