Refinancing Made Up 63% of New Mortgages in 1st Quarter, Averaging 1.2 Points Lower

During the first three months of the year, borrowers took advantage of lower-than-expected mortgage rates to reduce their monthly payment and shorten their loan term.
Refinance activity accounted for 63 percent of all new home loans in the first quarter, according to new data from Freddie Mac.

About 27 percent of borrowers increased their loan amount when refinancing, either by cashing out equity or consolidating loans, compared to 29 percent from last quarter, 17 percent from the same time last year — and dramatically below the peak of 89 percent in 2006.
The average interest rate reduction in the first quarter was about 1.2 percentage points — a reduction of about 24 percent.
On a $200,000 loan, that translates into saving about $2,500 in interest during the next 12 months. Homeowners who refinanced through the Obama Administration’s Home Affordable Refinance Program (HARP) received an average rate reduction of 1.8 percentage points, which means they will save an average of $3,500 in interest during the first 12 months or about $290 monthly.
Most Borrowers Kept Same Loan Amount
About 73 percent of those who refinanced their first-lien home mortgage kept about the same loan amount, or lowered their principal balance by paying in additional money at the closing table, about the same as last quarter.
“Refinance borrowers are primarily looking to reduce payments and pay down principal faster,” said Len Kiefer, Freddie Mac deputy chief economist. “We estimate that borrowers who refinanced in the first quarter will save on net more than $1.4 billion in interest payments over the first 12 months of their new loan.”
Of those borrowers who refinanced during the first quarter of 2015, 34 percent shortened their loan term, down slightly from the previous quarter. Of the borrowers who went through HARP, 36 percent shortened their term. During the past four quarters, more than one-third of HARP borrowers shortened their term.
Prior Loan Median Age: 5.6 Years
More than 95 percent of refinancing borrowers chose a fixed-rate loan. Fixed-rate loans were preferred regardless of what the original loan product had been. In sharp contrast, only 3 percent of borrowers who had a fixed-rate loan chose an ARM.
For all other (non-HARP) refinances during the fourth quarter, the median property value was up 5 percent between the dates of placement of the old loan and the new refinance loan. The prior loan had a median age of 5.6 years, down from 6.8 years in the fourth quarter of 2014.

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