Homeowners have not only completed more of these transactions in recent years than ever, but they have also grown more aggressive in how much cash they are taking out. According to Freddie Mac, more than 20 percent of each refinanced loan will be taken as cash this year, virtually the same as last year. That is more than double the average of the previous five years.
Instead of saving or investing, some of these borrowers will spend $6 of every $10 they take out in home equity, said Raphael Bostic, a professor of economics at the University of Southern California. More important, he added, consumers often spend much of the money on things like cars, furniture, vacations and home-entertainment systems.
''Households have really been leaning on their home equity in an important way,'' Mr. Bostic said. ''It's one of the reasons you've seen the general economy continue to perform, which is good in that it's another way for households to smooth consumption.''
But the difficult thing, Mr. Bostic added, ''is when you're consuming things where you're repaying for a lot longer than you're getting the service.''
As an example, he cited cars, which typically carry five-year loans.
''If you pay for that car through a house refinance,'' he said, ''you're paying for that car for 30 years -- long after you've stopped getting value from it. Talk to financial folks, and they'll say you shouldn't buy short-term pleasures with long-term money.''