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October 24, 2014

Return of Equity Brings Back Cash-Out Refis

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Return of Equity Brings Back Cash-Out Refis

As home equity rebounds, cash-out refinances are making a comeback, The Los Angeles Times reports. In the wake of the housing boom, cash-out refinancing was derided as a practice wherein home owners used their home's equity like an ATM. But the situation has changed somewhat, as today's transactions are occurring under much tighter lending guidelines.

Quicken Loans estimates that about a quarter of new refinances are from cash-out refinancing. Freddie Mac reports that cash-out refinancings rose to 17 percent of all refinancings in the first quarter—compared to 14 percent during the same period last year.

Home owners are opting to use cash-out refinances for more financially sound purposes than in the past, says Bob Walters, chief economist for Quicken Loans. Walters says many of their borrowers are using it for debt consolidation. Charles Brown, Insignia Bank's chief executive, says many of their borrowers are using the money from the cash-out refinancings to consolidate high-cost credit card, mortgage, and other floating-rate debt into fixed-rate home loans.

But another type of cash-out client also is emerging, notes Paul Skeens, president and owner of Colonial Mortgage. Skeens says they're seeing investors from the recession who had purchased homes at bargain prices with little or no cash. These investors have built up equity in the past few years and are now looking to take out some cash to make new investments.

Source: “Cash-Out Refinancing Grows More Attractive for Borrowers With Equity in Their Homes,” The Los Angeles Times (May 2, 2014)

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