Key Takeaways
More borrowers are refinancing even as mortgage rates remain near 7%.Consumers are tapping into the increasing value of their homes, especially as consumer debt levels continue to rise.As mortgage rates rose higher in recent years, so did the share of cash-out refinancing loans, showing that borrowers sought to get money out of their higher home values.
More homeowners are refinancing their homes, even as mortgage rates remain elevated—seemingly a contradiction.
Refinancing activity was 33% higher last week than at the same time last year, according to recent data from the Mortgage Bankers Association. That’s despite mortgage rates hovering near 7%. In contrast, mortgage applications for home purchases were up over 2% over the same period.
Those numbers reinforce that refinancing may be worth it for some homeowners despite still-mortgage rates, given rising home prices and burgeoning consumer debt, experts said.
Why Refinancing at High Rates Make Sense For Some
Many people are taking advantage of a specific type of refinancing, known as “cash-out refinancing. ” In this type of refinancing, homeowners take out larger loans, pay off the balance of their home, and use the rest of the money for other purposes, like paying off debt.
With home values steadily rising across the U.S., many homeowners are turning to refinancing to get value out of their home, said Phil Crescenzo Jr., Nation One Mortgage Corporation southeast division vice president.
The share of cash-out refinance loans has grown over time, according to real estate data provider Intercontinental Exchange. Cash-out refinancing outpaced rate-adjustment refinancing for three straight years until a dip in mortgage rates last fall had homeowners looking for lower borrowing costs.
The data showed that during September and October, nearly a quarter of borrowers with balances of less than $125,000 refinanced their properties at a higher rate.
Rising Consumer Debt May Have Something To Do With ReFi Activity
Consumers do have more to pay off, with data from the New York Federal Reserve showing that household debt rose higher in the third quarter of 2024, and 3.5% of all loans were in some form of delinquency.
“Consumer debt across the country is up, because of inflation and everything else. People are financing things, maybe they’re carrying personal loans or credit cards. Accessing the mortgage, maybe to get $100,000 to pay off a bunch of loans and bills and whatever, that’s going to be some numbers that you want to run. They just can’t get the money any other way,” Crescenzo said.
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