Home Borrowing Danger in Boca Raton, FL

Boca Raton Real Estate

The cash raised in such refinancings nationwide nearly quadrupled in two years, from $44 billion in 2000 to an estimated $172 billion in 2002. Economists say that cash boosted consumer spending that's remained strong despite the economic downturn.

"This helps explain the miracle of consumer spending growth amid declining income levels," said John Lonski, chief economist at Moody's Investors Service in New York.

But Lonski and other experts warn that borrowing against your home and then spending the proceeds can be dangerous in a down economy.

As mortgage rates fell to historic lows, home owners took advantage of the refinancing boom in a variety of ways. Some were able to go from 30-year mortgages to 15-year mortgages while keeping their payments the same.

Others replaced their 5-year-old mortgages with new 30-year mortgages, putting themselves in the position of taking 35 years to pay for their homes. In addition, many folded the closing costs back into the loan and increased the amount they owed, albeit at a lower interest rate.

And still others refinanced their loans at much higher amounts and pocketed the difference, taking advantage of the way rising prices or upgrades they'd made increased equity in their homes.

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