Cash-out refinances were a major boon to the remodeling industry during the boom period that began at the beginning of this century. With interest rates steadily climbing higher from their all-time lows of a few years ago, however, refi's have been considered something of a dead source of remodeling activity. But second quarter data from Freddie Mac indicates that conditions may be favorable for a resurgence of remodeling financed by homeowners reworking their mortgages.

In the second quarter of this year, 74% of all refinanced loans resulted in a loan amount that was at least 5% higher, meaning that the majority of people refinancing are doing so to take cash out, not to get a lower rate. Kermit Baker of the Joint Center for Housing Studies at Harvard University says that could mean big things for home improvement. “People traditionally [take cash out] to pay college tuitions, take vacations, buy luxury items — or undertake a remodeling project.”

Although Freddie Mac doesn't issue any predictions for this sort of data, it does provide a small view into the future by looking at influencing factors. “We expect that mortgage rates will drift upward,” says Eileen Fitzpatrick, senior communications specialist at Freddie Mac. If that's the case, then there will likely be fewer people refinancing, but of those who do, a higher percentage will take cash out. “It's the only incentive to refinance,” Fitzpatrick concludes.

From file "034_RMs" entitled "MarketWatch3.qxd" page 01
Freddie Mac From file "034_RMs" entitled "MarketWatch3.qxd" page 01