July 31, 2010

Cashing In on Refis

More Homeowners Putting in Cash to Refinance

By M.P. McQueen. The Wall Street Journal

Second quarter data from Freddie Mac, the mortgage investor, released Wednesday confirms a trend of “cash-in” refinancings. As we reported in Saturday’s Journal, more homeowners are paying down their principal balance in order to take out a new loan at a lower interest rate.

About 22% of homeowners who refinanced their first-lien mortgage during the last quarter put in cash to lower principal, tying a record for the third highest “cash-in” share since Freddie Mac started keeping records in 1985. The share increased from the first quarter, when the revised cash-in share was 19%, according to revised figures.

On the other hand, borrowers who took cash out at closing, and increased their loan balance by at least 5%, fell to 27%, near-all time lows in the last few quarters, the company said. Cash-out financing was popular for years prior to the housing bust.

Overall, total home equity converted to cash fell to the lowest level in a decade, at $8.3 billion.

image According to an April article from bankrate.com, the primary cause of stepped up cash-in refinancing was tighter lending standards, or home appraisals coming in lower than expected.

Low appraisals!  Good thing we live in the Real Bay Area (RBA), where home values never go down!  If there are cash-in refis going on here, it’s to avoid higher interest rates, right? Conforming loans must be for $417,000 or less.  A mortgage over $729,750 will have even higher interest rates than a non-conforming loan.  Homeowners hoping to refinance at today’s lower rates could pay in additional money to lock in significantly lower rates.

Are banks even allowing cash-out refinancing anymore?  Isn’t that how the non-RBA got into this mess?  But good news awaits!  With low interest rates and cash-in mortgages in vogue, now is the time to double down on your house!  Yes, sell your underwater house, bring cash to the closing and retire your mortgage, then buy a bigger house at a lower rate for similar monthly payments!  What could possibly go wrong?  Well, other than the economy double-dipping, interest rates going up pulling down home values, or McMansions going out of vogue with green-conscious Generation Y buyers?  Oh, don’t worry about that last possibility, none of them can afford a house because they all owe too much on their college loans!

Comments (11) -- Posted by: madhaus @ 5:02 am

11 Responses to “Cashing In on Refis”

  1. SEA Says:

    But we live in simpler times where home maintenance only requires light bulbs and drain cleaner.

    My yard looks like a flyover state: dirt. I’m thinking I’ll try light bulbs next year.

  2. waiting_for_the_fall Says:

    I’m surprised they have cash to pay down the principle to be able to refinance.

  3. Real Estater Says:

    >>I’m surprised they have cash to pay down the principle to be able to refinance.

    You wouldn’t be surprised if you talk to people. There’s tons of cash on the sidelines.

  4. Pralay Says:

    There’s tons of cash on the sidelines.
    —–

    Your statement is based on the assumption that the world revolves around your opinion.

  5. Real Estater Says:

    >>Your statement is based on the assumption that the world revolves around your opinion.

    And my opinion is based on an average tech guy’s bank account.

  6. SEA Says:

    Real Estater- “And my opinion is based on an average tech guy’s bank account.”

    With an average 2.2 children?

  7. madhaus Says:

    And my opinion is based on an average tech guy’s bank account.

    Average tech guy has no money in bank account.

  8. waiting_for_the_fall Says:

    Everyone I talk to barely can make their mortgage payment because they had to put all their money into a downpayment, and those are average tech guys.

    But that’s in San Jose, not Palo Alto. Maybe the people I know are really below average tech guys because they live in San Jose.

  9. Petsmart groomer Says:

    Real Estater does not know the difference between apathy and empathy.

    > Everyone I talk to barely can make their mortgage payment because they had to put all their money into a downpayment, and those are average tech guys.

    Huh? Savings pay for the downpayment but income should pay for the mortgage. Did they lose their jobs and have to use their savings for the mortgage?

  10. SEA Says:

    We all know that in the RBA the best move is to be 100% invested in real estate. No one in the RBA should have any significant savings–if so, it’s time to trade up.

  11. Pralay Says:

    And my opinion is based on an average tech guy’s bank account.
    —–

    LOL! Does Real Estater have access to people’s bank account? There are three options -

    1. Real Estater is liar (and there is nothing new about it).
    2. Real is a professional hacker who hacks others’ bank accounts.
    3. Real Estater is a bank teller who has a habit of sneaking into account holder’s accounts.


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