RISMEDIA, August 4, 2011—Freddie Mac released the results of its second quarter refinance analysis showing homeowners who refinance continue to strengthen their fiscal house.
Here is a summary of the results:
• In the second quarter of 2011, 77 percent of homeowners who refinanced their first-lien home mortgage either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table. Of these borrowers, 51 percent maintained about the same loan amount, and 26 percent of refinancing homeowners reduced their principal balance.
• “Cash-out” borrowers, those that increased their loan balance by at least five percent, represented 23 percent of all refinance loans; the average cash-out share during the 1985 to 2010 period was 46 percent.
• The median interest rate reduction for a 30-year fixed-rate mortgage was about 1 percentage point, or a savings of about 18 percent in interest rate. Over the first year of the refinance loan life, these borrowers will save over $1,550 in interest payments on a $200,000 loan.
• The net dollars of home equity converted to cash as part of a refinance of a conventional, prime-credit home mortgage was an estimated $7.5 billion in the U.S. during the second quarter, similar to the first quarter level but substantially less than during the peak cash-out refinance volume of $83.7 billion during the second quarter of 2006. Taken together over the first two quarters of 2011 and adjusting for inflation, the amount of equity cashed-out was at the lowest level in 15 years, since the second half of 1996.
Among the refinanced loans in Freddie Mac’s analysis, the median value change of the collateral property was a negative 7 percent over the median prior loan life of five years. In comparison, the Freddie Mac House Price Index shows about a 25 percent decline in its U.S. series between March 2006 and March 2011. Thus, borrowers who refinanced in the second quarter owned homes that had held their value better than the average home, or may reflect value-enhancing improvements that owners had made to their homes during the intervening years.
For more information, visit http://www.freddiemac.com/.
