More home equity = more cash-out refinances

For years following the Great Recession, many Americans were unable to refinance due to a lack of equity. However, Black Knight Financial Services reports that as a result of increases in home values, people have been able to refinance and even take advantage of cash-out refinances.

Based on data from Black Knight’s Mortgage Monitor Report, home equity rose nearly a trillion dollars last year alone, matching the peak level in 2007. A combination of increases in equity and historically low rates has led large numbers of homeowners to take advantage of cash-out refinances, which rose in volume by 70 percent compared to this time last year.

Homeowners are able to take out about $67,000 on average while still keeping the average loan-to-value ratio of refinances at 68 percent. Low interest rates and greater equity have also led to greater numbers of second lien home equity lines of credit. It is expected that home equity loans will increase when interest rates rise since people will want to hold on to low rates.

Analysts determined that the average borrower managed to save $136 per month and lower their interest rate by approximately one percent with a refinance, representing the lowest savings in nearly a decade and the lowest rate reductions in five years. There are several reasons cited for these historic lows. People with lower balances are likely to see smaller savings, and homeowners are also increasingly shortening the terms of their loans. Additionally, multiple refinances are not uncommon, resulting in smaller reductions in interest rates.

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