My Real Estate Blog

Refinancing home owners are putting money back into their home at record levels to help plug the equity drain.

One in three borrowers, 33 percent, who refinanced their loan in the fourth quarter of 2009, lowered their principal balance, the highest "cash-in" share since Freddie Mac's quarterly Refinance Report began tracking the refinance data.

The report also showed that the share of "cash-out" borrowers who did the opposite and increased their loan balance by 5 percent or more during the same period was also at a record low, 27 percent.

The last record low cash-out share was 33 percent during the second quarter of 2003, just before the last housing boom began. The data is the latest available from the Freddie's refinance report, but home owners are expected to continue the trend in the soft economy.

The cash-out loan has been steadily heading towards extinction as funding for this once popular consumer-spending-friendly loan has fallen to the lowest level since 1985 as consumers struggle to restore their household balance sheets.

When home owners complete a cash-in refinance, they take a check to the closing. That can help them surface an underwater mortgage -- a mortgage balance that's larger than the home is worth.  It can also free up more equity for a rainy day, make the home easier to sell and, in some cases, give a boost to the credit score, due to the smaller mortgage balance.

Once home value appreciation sufficiently resumes, the cash-in could also be considered an investment with a better return than other investments. It's a very smart place to put money in tough economic times.

In a cash-out refinance, on the other hand, the home owner walks away with a check and that drains equity out of the home.