November 8, 2011 (Jeff Alan)
The amount of cash that borrowers who refinanced their mortgages took out against their home’s equity was at the lowest levels in 16 years according to Freddie Mac’s third quarter refinance analysis.
Eighteen percent of all refinanced loans in the third quarter of 2011 were “cash-out” borrowers, those that increased their loan by at least five percent, down from 23 percent in the second quarter.
Borrowers who refinanced their mortgages “cashed-out” – converting home equity to cash – an estimated $5.3 billion in the quarter, the least amount of equity converted to cash since 1995.
The average percentage of cash-outs during the 1985-2010 period was 46 percent.
Eighty-two percent of the homeowners who refinanced their first-lien home mortgage during the third quarter either maintained the same loan amount or lowered their principal by putting “cash-in.” Forty-four percent maintained about the same loan amount while 37 percent of refinancing homeowners put cash in, reducing their principal.
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 third 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 1.2 percentage point, or about 22 percent below their initial rate, which allowed borrowers to save about $2,500 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 September, with 30-year product averaging 4.11 percent and 15-year averaging 3.32 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