Working Paper
Not Cashing In on Cashing Out: An Analysis of Low Cash-Out Refinance Rates
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.
JEL Classification: D14; G51; G40; G53;
https://doi.org/10.21799/frbp.wp.2026.01
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Bibliographic Information
Provider: Federal Reserve Bank of Philadelphia
Part of Series: Working Papers
Publication Date: 2026-01-07
Number: 26-01