February 3, 2012 (Jeff Alan)
Almost half of all homeowners who refinanced their fist lien mortgage in the fourth quarter of 2011 reduced their principal balance according Freddie Mac’s Fourth Quarter Refinance Analysis.
An unprecedented 49 percent of homeowners paid down their principal balance when they refinanced their mortgages in the fourth quarter, the highest percentage in the 26-year history of the analysis.
An additional 37 percent of the homeowners maintained about the same loan amount when they refinanced. The combined percentage of those who paid down their principal mortgage and those who maintained their same loan amount was also at a 26-year high.
Fifteen percent of all refinanced loans in the quarter were “cash-out” borrowers, those that increased their loan by at least five percent, down from 18 percent in the third quarter. That conversely was the lowest percentage of cash-out borrowers in the 26 years of the analysis.
Compare that to the average between 1985 and 2010, when 46 percent of the homeowners took cash out of their homes when they refinanced.
Borrowers, who refinanced their mortgages and converted equity to cash, took an estimated $5.5 billion in the quarter, the least amount of equity converted to cash since 1995 when adjusted for inflation.
Cash-out refinance volume peaked in the second quarter of 2006 at $83.7 billion. The amount of cash borrowers took out of their homes in the fourth quarter was less than seven percent of that total amount.
For 30 year fixed rate mortgages, the median interest rate reduction during the quarter was about 1.4 percentage points, or about 26 percent below their initial rate, which allowed borrowers to save about $2,700 in interest payments in the first year of their loan with a principal of $200,000.
Frank Nothaft, Vice President and chief economist of Freddie Mac stated, “Savvy homeowners are taking advantage of some of the lowest fixed-rates in more than 60 years to lock in interest savings. Fixed-rate mortgage rates hit new lows during December, with 30-year product averaging 3.96 percent and 15-year averaging 3.25 percent that month, according to our Primary Mortgage Market Survey.”
Tags: Freddie Mac, home equity, borrowers, refinance, cash-out, cash-in, principal, interest, interest rate reduction