Despite higher interest rates, homeowners in record numbers are converting ARMs to fixed-rate mortgages and cashing out equity via refinance loans.

Homeowners continue to prefer cash out refinance loans to other forms of borrowing. Frank Nothaft, Freddie Mac vice president and chief economist, says,

"Mortgage borrowers continue to refinance their mortgages at a higher frequency than historically would have occurred given the rise in mortgage rates over this year. But the wide proliferation of adjustable-rate mortgages (ARMs) originated in the past few years that are nearing their first interest-rate adjustment provides borrowers an incentive to refinance into a lower-cost ARM or fixed-rate mortgage. In addition, borrowers who might have considered a prime rate home equity loan for a home improvement or other need are turning to cash out refinance options now that the prime rate is above 8 percent."