On January 24, 2025, the CFPB published a report about financial outcomes for cash-out refinance mortgage borrowers. Home equity is a key financial asset for families, allowing homeowners to use a cash-out refinance to access funds for debt repayment or home repairs, but this can also elevate the risk of foreclosure.
According to the report, cash-out borrowers initially saw an improvement in credit scores, which gradually declined but remained above pre-refinance levels, often using the funds to pay down other debts like credit cards and auto loans. In particular, the report found that:
Borrowers gave “pay off other bills or debts” as the most common reason for cash-out refinancing. From 2014 to 2019, over 50% of cash-out borrowers in the National Survey of Mortgage Originations chose “paying off other bills or debts” as their reason. In 2020 and 2021, this reason was selected by over 40%. “Home repairs or new construction” was the second-most common reason 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 saw significant decreases in credit card and auto loan balances after refinancing, but their student loan balances remained stable. They also experienced sharp increases in credit scores in the quarter following the refinance. While credit card balances and usage returned toward pre-refinance levels over the next year, they did not fully reach those levels. Credit scores declined during the year post-refinance but stayed above pre-refinance levels.
The CFPB’s press release can be found here.
Read the full report here.