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Cash Out Refinances Hit Peak Because of ARMs?

Posted By Jim On 11/07/2006 @ 4:03 pm In The Home | No Comments

From a CNN Money article [3]:

“In the quarter, 89 percent of Freddie Mac-owned loans that refinanced got mortgages that were at least 5 percent higher than the original balances.”

I have a friend, who has promised to write me up a piece about her refinancing experiences, who will be getting out of a 3/1 adjustable rate mortgage and getting into a 30-year fixed mortgage. She originally chose the 3/1 ARM because of its lower payments and the lower rate, knowing full well that the rate was likely going to increase in three years. She didn’t buy too much house, she didn’t get in over her head, she just didn’t want to be paying a potential 8%+ interest rate.

In her refinance, she’ll be refinancing for higher than her original loan balance because she’ll be using part of her equity to pay for the closing costs of the new loan. So I contend that the sharp increase in cash out refinances, highest in 16 years, can be attributed to those homeowners who have seen the tail end of the boom and are looking to get themselves out from behind an onerous adjustable rate mortgage.


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[3] CNN Money article: http://money.cnn.com/2006/11/01/real_estate/cash_out_refis_peak/index.htm?postversion=2006110111

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