‘Cash-in’ Refinancing to Lower Mortgage Debt at 26-Year High

The vast majority of refinancing homeowners maintained or reduced their mortgage debt in the fourth quarter, while those paying-in additional money to reduce principal is at a 26-year high, according to an analysis by Freddie Mac.
In the final three months of 2011, 85 percent of homeowners who refinanced their first-lien mortgage either maintained about the same loan balance or lowered their principal.
Of these borrowers, 37 percent kept the same amount, and 49 percent represented “cash-in” borrowers who lowered their mortgage debt – that’s a 26-year high for Freddie Mac’s analysis.
Long-term mortgage interest rates have set new lows several times since October of last year. This week, Freddie Mac reported yet another record low at 3.87 percent for the 30-year fixed rate.
“Savvy homeowners are taking advantage of some of the lowest fixed-rates in more than 60 years to lock in interest savings,” said Frank Nothaft, Freddie Mac vice president and chief economist.
“Cash-out” borrowers, those that increased their loan balance by at least five percent, represented 15 percent of all refinance loans, the lowest percentage in the 26 years of analysis. The average cash-out share from 1985 to 2010 was 46 percent.
The net dollar amount of home equity converted to cash as part of a refinance, adjusted for inflation, was at its lowest level in 16 years– not since the third quarter of 1995.
In the fourth quarter, an estimated $5.5 billion in net home equity was cashed out in the refinance of conventional prime-credit home mortgages, down from $5.6 billion in the third quarter – and significantly less than during the peak cash-out refinance volume of $83.7 billion during the second quarter of 2006.
The median interest rate reduction for a 30-year fixed-rate mortgage was about 1.4 percentage points, or a savings of about 26 percent in interest rate, the fourth-quarter report said.
Over the first year of the refinance loan life, the median borrower will save about $2,700 in interest payments on a $200,000 loan.

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