February 21st, 2019

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Capital Economics recently came out with a report predicting that cash-out refinances will increase over the next few years, ultimately hitting a 10-year high. This is because home prices have been rising by 5% year-over-year for the last 4 years while FICO scores are rising and DTI ratios are decreasing for many homeowners. Q3 of last year proves this trend, as 80% of all refi transactions were cash-out loans, the highest level since 2007. Freddie Mac pointed out that Q3 also saw homes which were refinanced increased in value by 20% on average compared with the original value when the mortgage was first originated, and that trend is likely to continue over the next 2 years.

Even though Rate & Term refis are a dying breed right now, loan officers have a ton of opportunities presenting themselves in the cash-out market. With tappable home equity being near all-time highs, and with mortgage rates staying relatively low, now is a great time for consumers to tap into their equity to help them with their major financial goals, whether that be college, retirement, investments, etc. Loan officers do, however, need to be careful in how much they encourage cash-out refinances because even though the economy is showing good signs of strengthening, we still face a lot of variables. Loan officers need to position themselves as advocates and educate their borrowers on all of the pros and cons of tapping into their equity, and also make sure that a safe amount of equity is still left in the home and in their client’s reserve funds.

Beau Vermillion