New vogue in refinancing: cashing in, not out

refinancing homeAfter years of viewing their homes as piggy banks to be plundered at will, Americans are finally putting some money back in, at least when they're refinancing.

According to new figures compiled by mortgage-funder Freddie Mac, in the fourth quarter of 2009, one-third of borrowers who refinanced their homes actually added cash to the deal to lower their mortgage balances -- a record number since the discount lender started collecting the data in 1985. On the flip side, just 27 percent of people refinancing their homes pulled cash out, which is the lowest number on record.
In a column about the cash-in trend, the Washington Post called it "the post-boom, post-crash trend that's really hot." The cash-in vogue seems to be on the rise as well, increasing from about 13% of refinancings in early 2009 to 33% in the final three months. In a regional breakdown, Freddie Mac found the Midwest had the largest share of cash-in refinancing.

These days, a home loan may be the best place for people to stash some of their cash -- if they have any -- what with many investments languishing, and interest and CD rates remaining painfully low. For those whose homes have lost significant value, refinancing may be the only way they can take advantage of low loan rates, which are expected to rise later this year.

"Homeowners who can't refinance because their mortgage rates are 'under water' should seriously consider using savings to pay the mortgage balance down enough to qualify for refinancing," Richard Barrington, a consultant for, told WalletPop.

Freddie Mac, which bases its survey on a sample of properties where it has funded at least two loans in a row, said the results fit in with other economic indications that people are looking for ways to trim back their monthly overhead. For the unemployed and those who've taken financial hits from furloughs and wage reductions, cutting day-to-day expenses often takes precedence over maintaining longer-term savings.

"This transformation from a cash-out refi market to a cash-in refi market is consistent with other data we've seen on households reducing their overall debt burdens, particularly revolving credit like credit cards," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement. "From September of 2008 to November of 2009, consumers cut $100 billion dollars in revolving debt from their obligations, according to the Federal Reserve Board."

Still, not everyone is with the program. An estimated 27% of those surveyed increased their loan balances by 5% or more, with those living in the South the most likely to join the cash-out crowd. While that represents a record low, it means more than one in four refinancers chose to ignore the lessons of recent history.
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