Dont Drain Home Equity in Boca Raton, FL

Boca Raton Real Estate

Is the equity in your home going up in smoke?

A growing number of experts worry that the record rush of mortgage refinancings, spurred by home owners seeking savings with lower interest rates, actually left many in worse shape financially.

The culprit is cash-out refinancings -- when a borrower takes equity out of the home as part of the refinancing. In some cases, experts say, home owners are left owing more than the home is worth.

Cash-outs exploded, fueled by rising home values and falling mortgage rates. Freddie Mac, the mortgage underwriter, estimates that during the past two years, more than half of refinancings have been cash-outs -- when the loan amount rises by more than 5 percent.

"It's easy to see how lenders and borrowers could abuse this source of cash," said Mark Zandi, chief economist at

Studies show that the chances of a mortgage default triple when borrowers increase their balances 20 percent or more. Citing those figures, Freddie Mac and sister agency Fannie Mae recently announced additional fees for cash-out refinancings.

"They want to make sure people aren't leveraging up too much -- especially in areas of the country where house prices have grown too quickly," Zandi said.

But higher fees may not be enough to dissuade home owners lured by the equity in their homes, whether they want money to put a new surround-sound system in the family room, pay off other debts or put food on the table after a layoff.
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