It's on the House

Elizabeth Cruppa, an office manager with a small downtown law firm, takes a conservative approach to home equity. Ten years ago she used a line of credit to put a new kitchen in the Alexandria home she has had for 18 years. Then last month she closed on another loan she'll use for a new furnace.

"I don't want to touch my savings," she said. "This way I get the interest deduction."

Several factors have combined to make all this lending and borrowing possible, especially the $4 trillion in value the nation has added to its housing stock in just the past four years. Compared with that figure, the $147 billion and $139 billion Americans have pulled out of their homes in the past two years doesn't seem like that much.

But it's not rising values that have prompted this surge, mortgage experts say, it's our growing comfort with the experience.

Even the most traditional homeowners began thinking about their homes as piggy banks during the first big refinancing boom in 1992, when mortgage rates fell below 10 percent. Since then, there have been several more surges of refinancing because of falling rates, giving people who were once intimidated by the idea of a real estate loan more experience with such transactions.

"The mystique of what a mortgage is has kind of gone away along with the competitiveness of the market," said Steve Calem, a local mortgage broker. "It's a big change."

To Paula Heichel, the growing value of her Capitol Hill home was just another tool she could use to streamline her finances. The financial consultant with Smith Barney took out a home equity loan to pay off some credit card debts, she said, and more recently refinanced to roll that loan into a 30-year fixed-rate mortgage. That lowered her total monthly payments by $400.

"I was concerned interest rates were going to keep going up," she said.

For homeowners such as Heichel and Cruppa, these transactions aren't a big deal anymore. And as consumers have become more confident about the intricacies of refinancing, the mortgage industry has responded by improving the process of getting a loan. It is much quicker, less onerous and cheaper than it used to be. Twenty years ago, the axiom was that it could pay to refinance if rates had dropped by 2 percentage points. Today, it can pay to refinance if you can drop your rate by half a percentage point, said Duncan of the Mortgage Bankers Association.

There is also much more to choose from. Twenty years ago, there were about 10 to 15 kinds of mortgage loans, Duncan said, but today there are 250 to 300. Banks have used advances in technology and consumer databases to reach new segments of the home-owning population, such as those with weaker credit, and have tailored financial instruments to meet the needs of just about any kind of consumer at any point in time.

That flexibility and growth have had a reinforcing effect: Newly available loans have increased the rate of homeownership nationwide, and that is helping to push prices up. Those higher prices mean more equity -- and more owners tempted to cash in on that equity.

Tom Regnell, for example, has refinanced five times since he bought his house in the Belle Haven area of Alexandria five years ago. When he refinanced this last time, he finally took out some cash -- enough to buy a piece of property near the Homestead resort in Hot Springs, Va., and start building a second home. He thinks it's a smart move.