WSJ: Americans Are Taking Cash Out of Their Homes -- And It Is Costing Them

Published December, 2019

By Ben Eisen

Many U.S. homeowners who need cash are taking it out of their properties. The trade-off: higher interest rates.

Over the past two years, a big chunk of homeowners took on higher interest rates when they refinanced to tap their home equity. These cash-out refinancings, as they are known, free up money homeowners can use to pay down credit-card debt, renovate or invest in a new property.

Nearly 60% of cash-out refinancings in 2018 came with higher interest rates, the biggest share since before the financial crisis, according to Black Knight Inc., BKI -0.50% a mortgage-data and technology firm. This year, that number fell to around 44% of cash-out deals, but it remains at more than three times its average between 2009 and 2017.

This corner of the mortgage market illuminates the crosscurrents in the U.S. economy: After roughly a decade of rising home prices, homeowners are flush with record amounts of home equity they can tap. But many Americans remain short on cash and are increasingly relying on debt to fund their lives.

“There’s something in their life that is causing them to need money,” said Sam Polland, a mortgage-loan officer at Sandy Spring Bank in Rockville, Md. “They are willing to go up in rate to get the equity out of their house.”

For some homeowners, the trade-off is worth it. While mortgage rates have crept up, they are still lower than what borrowers would pay if they tapped a credit-card or home-equity line of credit.

Cash-out refis made up a significant share of refinancings in the third quarter, helping fuel a rebound in the mortgage market after a dismal 2018. Led by refis, lenders originated $700 billion in mortgages in the third quarter, the most since before the financial crisis, according to industry research group Inside Mortgage Finance.

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