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Mortgage cash-outs at levels not seen since 1990

Many willing to pay higher interest rates to refinance

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With interest rates on home equity loans rising, more people are turning to cash-out refinancing to pay for home improvements, business investments or to consolidate debts, Freddie Mac economists report. Some 88 percent of Freddie Mac-owned loans refinanced in the second quarter of 2006 resulted in new mortgages with loan amounts at least 5 percent higher than the original mortgage balances. That's the highest cash-out rate Freddie Mac has seen since the second quarter of 1990. "The incentive to take cash out of home equity is partially driven by the rapid rise in short-term interest rates like the prime rate," said Amy Crews Cutts, deputy chief economist for Freddie Mac. "Many borrowers have seen their rates on home equity lines of credit -- which are tied to the prime rate -- rise. Now they are consolidating those (home equity) loans into a new first lien mortgage to reduce their mortgage payments." Freddie Mac estimates $500 billion in first-lien mortgages will adjust this year ...