A Brookings Institution article said that borrowers could see cash-out refinancings as an opportunity to tap into their housing wealth while locking in the lowest rates in several generations, as preferable to forbearance. It’s all part of a larger trend: We’ve already seen the big lenders put a choke-hold on HELOCs and mortgage servicers can’t forbear mortgage payments forever, right? The article said that allowing for more cash-out refinancings will allow households to tap into the $19.7 trillion of existing home equity to better weather this economic maelstrom, thereby resulting in fewer people falling behind on their mortgage and reducing the length of forbearance periods. CoreLogic estimates that 50% of outstanding debt has an interest rate of more than 4%, and 24% has an interest rate greater than 4.5%. “With the rates on home loans trending even lower, some existing homeowners will have an opportunity to refinance their loans and lower their monthly payments,” CoreLogic Deputy Chief Economist Selma Hepp said. “And then, while refinancing is not free, there will be a potential for many homeowners to save on their payments.”
Source: CoreLogic and Brookings Institution
Note: Many lenders are cutting back on or eliminating cash-out offerings.