With interest rates at historic lows and recent increases in Tucson, Ariz., home values, many jittery homeowners impacted by the coronavirus outbreak are looking to refinance to get their hands on cash.
Refinancing has been on the rise for months, but has jumped 479% so far in March, according to Zillow economists.
"Homeowners should use a conservative approach when deciding if they should tap into their equity," said Kim Dees, senior vice president and Southern Arizona division manager for WaFd Bank Arizona. "Using these funds for home improvements or paying off high interest debt may be reasons to consider; however, you do not want to draw down the equity too far."
She said homeowners should note how long it took for their homes to regain equity after the long downturn.
Last year, Tucson ranked second in the United States out of 100 metro areas in house price appreciation, according to the Federal Housing Finance Authority. Values increased an average of 10.3% over 2018, compared to 4.9% in the overall U.S. market in that time.
Todd Teta, chief product and technology officer with Attom Data Solutions, said each homeowner's situation is unique and the decision to refinance should be weighed with how much financial cushion one has and what their needs are.
"If someone really needs the money now, then recent home appreciation is there to draw on," he said. "But in the current, uncertain situation with coronavirus and its economic impact, home values could take a hit."
If a home's worth declines, drawing it down with a loan would compound that, Teta said.
Even before the current virus had its impact, lower interest rates had fueled a record number of refinances nationwide.
In the fourth quarter of 2019, homeowners took $1.27 million refinance mortgages, Attom data shows.
Experts suggest approaching your mortgage lender and asking for some relief during this time or to postpone payments for a while.
"Homeowners should contact their lender sooner than later," Dees said. "Reach out to your bank or mortgage company when it is clear you cannot make the payment.
"Do not wait until the payment becomes past due."
And, if you do pull money out of your home, risks such as stock market investments are not recommended, Teta said.
"A housing crisis could happen if the coronavirus outbreak stalls the economy for much longer," he said. "We are headed into peak buying season and if very few people are out there looking, then prices stand a very good chance of falling.
"If home values fall, that could throw some people who take out loans against their home equity under water (and) could put more people at risk of foreclosure and a potential cascading series of bad events for the housing market."
Dees advised homeowners who do refinance to prioritize paying off debt.
"Pulling equity out of your home for financial survival may be necessary (so) determine where you can make the biggest impact to reduce your expenses," she said. "The remaining funds should be saved for an emergency fund."
