Rising rates to curb cash-outs

Homeowners are expected to tap into their home equity less this year than in 2003 because of rising interest rates.

So-called cash-out loans, mortgages refinanced at higher balances, are forecast to decline to an estimated $114.1 billion, down 18% from last year’s record $138.8 billion but still the second highest sum ever, Frank Nothaft, chief economist at Freddie Mac, said in an interview last week.

A drop in cash-outs signals the economy will have less support from the housing sector. Homeowners won’t be as reliant on gains in property values to support spending to pay down credit card debt, buy cars or remodel houses, Nothaft said.

The share of cash-out loans -- in an amount of at least 5% or higher than the original mortgages -- narrowed to 43% in the first quarter, down from 44% in the fourth quarter, according to Freddie Mac.