On January 24, the CFPB published a report titled “Cash-Out Refinances and Paydown Behavior of Non-mortgage Debt Balances,” which examined the use of proceeds by borrowers who obtained cash-out refinancing between 2014 and 2021, among other things. The report highlighted “paying off other bills or debts” was the most common reason selected by borrowers for cash-out refinancing. Another key finding was that cash-out borrowers had significant drops in credit card and auto loan balances, whereas student loan balances did not decrease following the refinance. The report also highlighted how cash-out borrowers had lower credit scores than noncash-out borrowers prior to refinancing, but their scores increased in the quarter after refinancing. As described by the Bureau, this could be attributed to their payment of debts. The report also noted while cash-out refinancing can be financially beneficial, it carries risks, such as potential foreclosure if mortgage payments become unsustainable. Additionally, the report acknowledged substantial costs associated with refinancing, including closing fees, can impact the overall financial benefits.
