Think twice before using your house as ATM, experts in Tucson advise

Low interest rates and higher home values have more Tucsonans taking out loans against their houses — a move mortgage lenders and financial planners warn can be risky.

While rates have been low for years, many homeowners waited until home values went up before tapping into equity.

“The mortgage market could have a refinance boom rivaling the one seen from 2008 to 2014, when about 25 million borrowers refinanced their mortgages,” a new report from the Urban Institute said.

Nationwide, home prices are up about 6 percent compared to last year, data from consumer analytics firm CoreLogic Inc. shows. Locally, the average sales price is up about 5 percent over last year, data from the Tucson Association of Realtors shows.

A Federal Reserve report shows the value of homeowners’ equity in real estate has more than doubled from a low in the first quarter of 2009, with a recovery price of nearly $7 trillion.

JKR Investment Group Inc. reports a 68 percent increase in cash-out refinancing in the second quarter of 2016 compared to last year.

Paul Volpe, senior vice president of Tucson-based Nova Home Loans, said the last two months have been the busiest for refinancing in almost 10 years.

“People are calling to take cash out,” he said. “Values have appreciated enough.”

Debt consolidation and home improvement are the biggest reasons cited for the refinancing, Volpe said, but several customers are looking for cash to buy new cars.

“I don’t recommend taking cash out to buy a car and finance it for 30 years,” he said. If that’s what customers want to do, “we do ask them to consult with a financial planner or accountant to make sure they’re not doing themselves any harm.”

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The regulations for refinancing since the housing crash are designed to protect consumers, such as only being able to take up 85 percent of the equity out of a home, said Bill Swain, branch manager for Wells Fargo Home Mortgage in Arizona.

“We do scrutinize the purpose for wanting to cash out,” he said. “We’re seeing a lot of home improvement stuff, adding new roofs and additions — making homes bigger so they don’t have to go out and buy another one.”

The bottom line, lenders say, if a person has good credit, the equity in their home and proof of stable income, they can do whatever they want with their cash, such as luxury vacations or cosmetic work.

And if a transitional lender won’t give them the money, hundreds of online lenders are willing.

One financial planner’s advise to homeowners considering cash-out refinancing?

“Be very, very, very careful and thoughtful,” said Linda Stratton, of Oro Valley. “It’s, I think, a potentially fast way to get poor.

“People used to say, ‘You never lose money on real estate’ and 2008 showed us otherwise.”

Stratton strongly discourages using a home to finance luxuries.

“If people cash out on home equity to spend on vacation or other wishes, it means they don’t have money elsewhere,” she said.

If a client insists on using their equity in a manner Stratton advises against, “I’d pull some newspaper articles from 2008 and make them read it,” she said. “We really don’t have long-term memory … it’s human behavior.”