August 8, 2012 (Jeff Alan)
The number of American’s who refinanced their first lien mortgage in the second quarter of 2012 and either maintained the same balance as their previous loan or who paid down their principal balance was at a 27-year high according Freddie Mac’s Second Quarter Refinance Analysis.
Eighty-one 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, up from 79 percent in the previous quarter.
Twenty-three percent of those homeowners paid down their principal balance when they refinanced their mortgages in the second quarter, up from 21 percent in the first quarter of 2012, while 59 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 27-year high.
Eighteen percent of all refinanced loans in the quarter were “cash-out” borrowers, those that increased their loan by at least five percent, down from 21 percent in the first 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 $5.0 billion in the quarter, the least amount of equity converted to cash since the second 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 second 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 28 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.
Homes refinanced under the federal government’s Home Affordable Refinance Program (HARP) had a median depreciation in property value of 34 percent with their previous loans having a median age of about 5.5 years. Non-HARP loans refinanced during the quarter had a median depreciation in property value of 2 percent with their existing loans having a median age of about four years.
Tags: Freddie Mac, home equity, borrowers, refinance, cash-out, cash-in, principal, interest, interest rate reduction