Cash-Out Means More Refinancing.

McLean, VA -- In the third quarter, 72% of borrowers who refinanced a Freddie Mac loan cashed out enough equity in their homes to create a new mortgage at least 5% larger than their previous one.

That rate, unchanged from the second quarter, suggests that consumers continue to see incentives to tap into home equity and consolidate other debts into their first mortgage.

Refinancing accounted for 44% of new loans in the third quarter, despite rising interest rates, Freddie Mac said. But rates remained low in the third quarter, averaging 5.76% for 30-year, fixed-rate loans.

However, the prime rate - key to home-equity lending and lines of credit - rose to 6.75% in the third quarter. That, coupled with the expectation that rates will continue to rise, seems to be spurring homeowners with home-equity debt to consolidate that debt into a new first mortgage at a lower rate than the home-equity loan or line. Home-equity lines are typically tied to the prime rate.

Amy Crews Cutts, Freddie Mac's deputy chief economist, told MSN that the rate trend may continue, increasing the disparity between rates on first mortgages and on HELOCs.

"The Fed has indicated they are going to continue to raise rates, so 7.5% or even 8% is not out of the question within the next year for home-equity lines."

She said that recent refinancing data also shows a lot of "product switching," as borrowers with adjustable products switch into fixed-rate ...