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Not Cashing In on Cashing Out: An Analysis of Low Cash-Out Refinance Rates

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Abstract

Lowering a borrower’s interest rate is one of the most effective ways to reduce a borrower’s debt burden. Mortgage refinancing offers a chance to shift debt balances from high-interest loans into a low-interest mortgage through “cashing out” some of the home’s equity. Using anonymized data on mortgage refinancing behavior, we find that over half of borrowers with high-interest loans and available home equity do not take advantage of their cash-out opportunities. While the cash-out “surcharge” can rationalize this pattern, we leverage a policy change at Fannie Mae that eliminated this surcharge for student-loan borrowers and find that the presence of a student loan does not significantly affect borrowers’ propensity to cash out.

Suggested Citation

  • Mallick Hossain & Igor Livshits & Collin Wardius, 2026. "Not Cashing In on Cashing Out: An Analysis of Low Cash-Out Refinance Rates," Working Papers 26-01, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:102303
    DOI: 10.21799/frbp.wp.2026.01
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    Keywords

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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

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