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Home prices are rising but think hard before cashing out your equity

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Sheila C. Bair

National home prices have grown by about 15% over the past year, giving homeowners greater equity and financial security. 

At the same time,rising prices have helped drive an increase in cash-out refinancing, where homeowners refinance to a lower mortgage interest rate while also taking money out by tapping into their increased home equity. In fact, according to Fannie Mae and Freddie Mac data, in 2020 approximately $185 billion of equity was extracted through cash-out refinances – the most since 2007, right before the Great Financial Crisis. 

In many cases, a cash-out refinance makes sense, allowing a family to cover a medical emergency or a longer-term investment such as college tuition or a home renovation. But cash-out refinances can also carry risks that every homeowner – and every lender – should consider, especially during times of rapid home price increases such as now.

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