Homeowners Refinance Into Bigger Mortgages

It seems they still have plenty of money in the bank. "Due to the rapid home price appreciation over the past few years, there remains a record amount of home equity for homeowners to tap into," David Berson, Fannie's chief economist, says in a report posted on the company's Web site this week.

He cites the Federal Reserve's estimate that owners' equity in household real estate increased by almost two-thirds between the end of 2000 and the end of last year to nearly $11 trillion.

Freddie Mac's first-quarter data back this up: The median age of Freddie Mac-owned loans that were refinanced last quarter was 3.3 years, so these homeowners had benefited from robust price gains in 2004 and 2005. The median appreciation on these refinanced properties was 24%, providing the owners with ample margin for taking out cash without running down their home equity.

No wonder mortgage lenders are still running so many ads.

Cheap financing is another incentive for cash-out refinancing. According to Freddie Mac, interest rates on 30-year fixed-rate mortgages averaged 6.2% in the first quarter, allowing many homeowners to use the proceeds to pay off higher-cost credit card debt or home equity lines. Amy Crews Cutts, Freddie's deputy chief economist, says the housing agency expects mortgage rates to remain stable; that means that a slowdown in refinancing activity is likely to be gradual.