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