With rising home values oftentimes come a sharp increase in cash-out refinancing. This past year saw this trend play out. However, starting Sept. 1, the rules they are a’changing. Homeowners will be more limited in how much equity they will be able to access.
Next month, the Federal Housing Administration will be limiting loan amounts for cash-out refis, maxing the take away at 80% of the home’s value. Previously, the numbers were 85% of the home’s equity.
What This Means…
Refinances grow in popularity when home prices and values increase. Oftentimes, homeowners take out these loans to upgrade their homes and pay for improvements. These upgrades either make a home more enticing to sell or more efficient for those living in the home.
According to the Wall Street Journal, in 2018, the volume of cash-out refinances grew as mortgage rates rose, making up 63% of all FHA refinance activity through September. This number jumped up from 39% in 2017.
These new restrictions are put in place to hopefully keep people out of foreclosures. Refinancing too often or too early can overextend homeowners As reported by MarketWatch, the FHA, which is a division of the Department of Housing and Urban Development, may ultimately be seeking to avoid a repeat of the chain of events that led to the last recession.