The Cash-Out Re-fi: Get It While You Can
For Immediate Release
August 22, 2012
If you’ve been thinking of refinancing your home to take advantage of today’s historically low interest rates and — while you’re at it — pull out some needed extra cash from your equity, there’s no better time than the present.
I’m not saying that just because of the low interest rates, although that’s reason enough. There’s another reason, based on this background:
Early this year, Bank of America stopped offering cashout refinance loans. It said the move was temporary, and that proved to be so — according to a BofA loan officer who told us that cash-out refinancing was reinstated in March.
Still, I’m just as concerned as I was when we initially heard about this. BofA said the reason was that it was busy doing other kinds of loans at that time. But that never added up with me; on the face of it, it doesn’t make sense. A loan is a loan is a loan.
My concern then and now is that we might not have heard the last of this. Another lender could take a similar action at any time, and it could become an industry pattern. Lenders would have a rationale: Many homes are underwater; banks don’t want to foreclose and get stuck with a lot more inventory. So, it is not far-fetched to think that it might become difficult or impossible
at some point to refinance for the purpose of cashing out some home equity to send your kids to college, pay for home improvements or repairs, back up your retirement funds, cover a medical expense and so on.
Cash-out refinancing accounted for 18% of all refinances last year, according to data from Freddie Mac. That’s nearly one of every five loans. Early in the last decade, such loans were even more popular, as people took advantage of rapidly appreciating home values and pulled out some of their equity for other purposes. But, as you probably know, houses aren’t appreciating like that anymore.
Loan qualifications are getting far more stringent. A client told me recently that he wanted to pull cash from his home for a major improvement, but his bank told him his income wouldn’t support it. It refused to give him any of his own money.
All this reinforces a major point you’ve heard me make repeatedly over the years: Don’t put a lot of cash into your home by making extra payments.
If you need some cash and have an equity-rich home right now, this is the time to get it. Refinance at today’s low rates — while you still can.