The old refinance model was simple: Buy a home, let its value rise while interest rates drop, then cash out and use the proceeds for a downpayment on another home or to improve the current one.
Post-pandemic, that model does not work for many borrowers. Rates are higher, so refinancing to extract equity can dramatically increase monthly debt service. And for those who bought after rates rose in 2023, there has not been enough appreciation in much of the U.S. to make cashing out worthwhile.
Incentives for cash-out refinancing have weakened, but tappable equity is at record levels. From the first quarter of 2020 to the second quarter of 2026, the average equity that could be extracted while maintaining an 80% loan-to-value ratio rose 86%, fro...