WASHINGTON— The CFPB has published a report about financial outcomes for cash-out refinance mortgage borrowers.
Cash-out borrowers had an initial sharp improvement in credit scores, followed by a gradually worsening of their scores. Scores in general, however, stayed above their pre-refinance levels. The report confirms that borrowers often do use the money from a cash-out refinance to pay down other debts, particularly credit card and auto loan debt. The report looked at borrowers between 2014 and 2021, the agency explained.
Key findings, according to the CFPB:
- Borrowers gave “pay off other bills or debts” as the most common reason for cash-out refinancing: Each year, from 2014 to 2019, more than 50% of cash-out borrowers responding to the National Survey of Mortgage Originations selected “paying off other bills or debts.” For 2020 and 2021, more than 40% selected that reason. “Home repairs or new construction” was the second-most common reason cited each year.
- Cash-out borrowers often have different debt profiles than other homeowners: Before the mortgage transaction, mean credit card balances were approximately $4,000 higher among cash-out borrowers, while mean student loan balances were approximately $4,000 lower. Mean auto loan balances were similar in magnitude for both groups of borrowers.
- Cash-out borrowers had sharp improvements in their debt load and credit scores at the time of refinancing: Cash-out borrowers had large drops in credit card and auto loan balances at the time of refinancing, but did not generally experience large drops in their student loan balances. Similarly, cash-out borrowers had sharp increases in their credit scores in the quarter after refinance. Credit card balances and use rates trended back toward pre-refinance levels in the year following the refinance, but they did not in that time increase to the pre-refinance level. Credit scores likewise decreased in the year following refinancing, but remained above pre-refinance levels.
Read Cash-Out Refinances and Paydown Behavior of Non-mortgage Debt Balances.