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The Changing Face of Cash-Outs
Cash-out refinancings are at an all-time high, but that’s not the real news here. Even the fact that more and more people are using this option as a way to gain some extra “spending” money is not new. While the money may go towards something as critical like settling outstanding debts or be used for something as frivolous as a once-in-a-lifetime vacation, the real news is that people are willing to pay a higher interest on the replacement loan.
Freddie Mac, the mortgage investment company, reports that most refinancers are choosing bigger replacement first mortgages with interest rates that average one-half of a percentage point higher than their old loans.
The difference in cash-out refinances effected today and those in practice three years ago is that refinancers in the present are opting for new balances and interest rates that are higher. The economic and financial scenario has also undergone a drastic change – short-term interest rates have risen to 8.25 from 4 percent in 2003 and 2004, and thirty-year fixed-rate first mortgages are touching 7 percent from 5 percent three years ago.
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