May 31, 2012 (Jeff Alan)
American’s who refinanced their first lien mortgage in the first quarter of 2012 continued to take advantage of historically low interest rates and strengthen their financial balance sheets according Freddie Mac’s First Quarter Refinance Analysis.
Seventy-nine percent of the homeowners who refinanced their first lien mortgage either lowered their principal balance or maintained about the same loan amount after paying closing costs.
Twenty-one percent of the homeowners paid down their principal balance when they refinanced their mortgages in the first quarter, down from a record 49 percent in the fourth quarter of 2011, while 58 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 at a 26-year high.
Twenty-one percent of all refinanced loans in the quarter were “cash-out” borrowers, those that increased their loan by at least five percent, up from 15 percent in the fourth quarter. Compare that to the average between 1985 and 2008, when 50 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 $5.3 billion in the quarter, the least amount of equity converted to cash since the third quarter of 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 first quarter was less than six percent of that total amount.
For 30 year fixed rate mortgages, the median interest rate reduction during the quarter was about 1.5 percentage points, or about 27 percent below their initial rate, which allowed borrowers to save about $2,900 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, “The typical borrower who refinanced reduced their interest rate by about 1.5 percentage points. On a $200,000 loan, that translates into saving about $2,900 in interest during the next 12 months. Fixed-rate mortgage rates hit new lows during March, with 30-year product averaging 3.95 percent and 15-year averaging 3.20 percent that month, according to our Primary Mortgage Market Survey®. The enhancements to HARP announced in October, such as removing the maximum loan-to-value limit, are beginning to show up in additional refinance volume during the first quarter. HARP loans were 20 percent of Freddie Mac’s refinance fundings during the first quarter, the highest share since HARP’s inception.”
Tags: Freddie Mac, home equity, borrowers, refinance, cash-out, cash-in, principal, interest, interest rate reduction