Hovering mortgage rates don’t stop many U.S. property owners from tapping home equity — even if it means a steep increase in their monthly payments.

In July, 86% of refinance deals required homeowners to pay a higher interest rate, the largest share on record, according to data from Black Knight, a mortgage and home equity industry research firm. The rate increased by an average of 1.3 percentage points, also a record, data show. Two years ago, virtually all refinance loans had lower mortgage rates, even though they also drew equity.

The sharp rise in housing prices in recent years has resulted in Americans achieving record levels of home ownership. According to the Federal Reserve, over the past decade, equity worth $20 trillion has been created. About half of the mortgages have equity that exceeds 50% of the property’s value.

As U.S. interest rates rose in the first half of this year, the share of mortgages that are refinance loans fell to about one-third of all applications. But since then, that share has remained fairly stable, even as mortgage rates have risen further. And last week, the Association of Mortgage Bankers reported about it a jump of 10%. in refinancing loans.

“strong guess”

According to Black Knight, these deals are driven by the need for cash. Cash outs rose to 97% of all refinancing operations in July, up from about one-third two years earlier.

Home improvement and debt consolidation are two of the biggest spending areas for homeowners, says Mark Sheknis, chief executive of digital home equity firm NFTYDoor.

“While mortgage rates are high, credit card rates are even higher,” he says. “Home equity is and always will be the most affordable way to finance the important things in life.”

Expectations of a correction in the housing market may be another impetus for borrowing. An August Fannie Mae survey found that consumers expect home prices to fall next year, making refinancing more difficult.

Schecknis said his “strong guess” is that the final figures for 2022 will show a surge in home equity borrowing. “We’re seeing strong demand, and I know other competitors are feeling it, too.”

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