Home values are rising and homeowners are taking advantage of that, finally tapping into that equity again in the form of cash-out mortgage refinances. They are doing so, however, by pulling the most conservative amounts in history.
Prior to the historic housing crash of the last decade, homeowners used their homes like ATMs, pulling out as much cash as the bank would allow, which at the time was essentially all of it and more. This led to millions of borrowers falling underwater on their home loans as home prices fell, and leading to 7.1 million homes so far ending up in foreclosure, according to Black Knight Financial Services.
Lending standards have tightened significantly since then, but borrowers are clearly much more risk averse. They are taking cash out again; 42 percent of mortgage refinances last fall involved borrowers taking cash out of their homes, not just lowering their interest rates. That is the highest share since 2008, according to Black Knight.
The average cash-out amount was over $60,000, but the average loan-to-value ratio after the refinance was 67 percent, the lowest level on record. Borrowers left 33 percent equity still in the home.