Working Paper

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

Mallick Hossain,
Igor Livshits &
Collin Wardius

January 2026

WP 26-01 – More than half of borrowers who have both home equity and high-interest loans fail to reduce their overall debt burden by folding this high-interest debt into a lower-interest mortgage when they undertake a mortgage refinance.

Supersedes Working Paper 23-04 – Not Cashing In on Cashing Out: An Analysis of Low Cash-Out Refinance Rates

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.

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Revisiting an Overlooked Strategy for Reducing Interest on Personal Debt

Research in Focus — Three researchers show that, despite the potential benefits, homeowners frequently opt not to “cash out” their home equity and use the proceeds to retire high-interest loans.