Homeowners are cashing in on years of home equity gains, even as mortgage rates remain elevated.
The trend sent cash-out home refinancing activity to a nearly three-year high in the April-June quarter, according to data from home loan data tracker ICE Mortgage Technology.
In a cash-out refinance, a homeowner takes out a loan for more than they owe on their mortgage and then pockets the difference. The funds are often used to consolidate debt, finance home improvement projects and pay for big-ticket purchases.
The average cash-out refinance in the second quarter resulted in the homeowner pulling $94,000 in home equity, increasing their monthly payment by $590. On average, they also raised the interest rate on their home loan by 1.45 percentage points, according to the report.
To qualify for a cash-out refinance, homeowners must have at least 20% home equity, have owned the home for at least six months and have at least a 620 credit score, among other criteria. Borrowers who got a cash-out refinance in the second quarter had an average credit score of 719, ICE Mortgage Technology noted.
Years of rising home values have made tapping their home equity a tempting option for many homeowners. The median price of a previously occupied U.S. home climbed to an all-time high of $435,500 in June. That’s a 48% increase from just five years ago.
