Few Homeowners Who Refinanced In Q1 Cashed Out Equity

Posted by Patrick Barnard on June 07, 2013 No Comments
Categories : Residential Mortgage

In yet another sign that Americans are taking a more prudent approach to their personal finances, government-sponsored enterprise (GSE) Freddie Mac's quarterly refinance report shows that of the borrowers who refinanced their homes in the first quarter of 2013, 28% shortened their term, 68% kept the same term, and only 3% lengthened their term.

In addition, the data shows that 95% of homeowners took advantage of long-term, fixed-rate mortgages. Altogether, borrowers who refinanced in the first quarter will save about $7 billion in interest over the next year.

Although a record number of homeowners refinanced their mortgages in the first quarter, in order to capitalize on historically low interest rates, Freddie Mac notes in its report that the refinance boom of the past three years has peaked, as interest rates and home prices are now back on the rise.

Freddie Mac estimates that $8.1 billion in net home equity was cashed out during the refinance of conventional prime-credit home mortgages during the first quarter – about the same as the previous quarter but substantially less compared to the peak cash-out refinance volume of $84 billion during the second quarter of 2006.

About 85% of those who refinanced their first-lien home mortgage maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table, the GSE reports. That is just shy of the 88% peak during the second quarter of 2012.

‘Borrowers continue to strengthen their fiscal house by taking advantage of near record low mortgage rates,’ says Frank Nothaft, vice president and chief economist for Freddie Mac, adding that the money borrowers will save through refinancing can be put toward savings, debt reduction or to support additional expenditures.

‘Further, the estimated $8 billion in cash-out activity will further augment borrowers' investment and consumption spending,’ he adds.

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