Average Refinance Dropped Rates by 1.7% in Q3, Highest in Survey History

by devteam November 8th, 2012 | Share

Americans continue to refinance with newrnloans the same size or smaller than the loans they are replacing.  Freddie Mac’s third quarter refinancernanalysis shows that 54 percent of homeowners who refinanced during the thirdrnquarter of 2012 took new loans of approximately the same size as the old and 29rnpercent brought funds to the table to reduce their mortgage balance.  The aggregate 83 percent is only slightlyrnbelow the record 85 percent of non-cash out borrowers in the fourth quarter ofrn2011.</p

The 17 percent of homeowners who tookrnout a new loan more than 5 percent larger than the old loan, Freddie Mac’srndefinition of a cash-out refinancing, is the same as in the second quarter andrnthe third quarter of 2011.  These numbersrnare a vast departure from cash-out percentages during the period from Q4 2005rnto Q3 2007 which always exceeded 80 percent.   </p

Homeownersrnwho refinanced reduced their interest rate by an average of 1.7 percentagernpoints or a savings of about 31 percent in interest rate, the largest percentrnreduction in the 27 years Freddie Mac has been tracking the data. </p

The net dollars of home equityrnconverted to cash as part of a refinance, adjusted for consumer-pricerninflation, remained at a low volume. In the third quarter, an estimated $7.7rnbillion in net home equity was cashed out during the refinance of conventionalrnprime-credit home mortgages, up from an estimated $5.9 billion in the secondrnquarter, but substantially less than during the peak cash-out refinance volumernof $84 billion during the second quarter of 2006.  An additional $8.7 billion was added to loanrnbalances due to consolidation of second mortgages or home equity lines ofrncredit.</p

The median age of the loans thatrnwere refinanced was 4.8 years compared to 5.1 years in the previousrnquarter.  Freddie Mac found that thernmedian appreciation of the collateral property over the life of the old loanrnwas -10 percent, down from -16 percent in the second quarter but double thernrate one year earlier.  Collateral appreciationrnhas been negative since the third quarter of 2009.  </p

Many of the loan metrics differedrnbetween refinancing done under the Home Affordable Refinance Program (HARP) andrnother refinances. The median collateral appreciation of HARP refinanced loansrnwas -31 percent over a prior loan life of 5.6 years and the average HARPrnborrower had an interest rate reduction of 2 percentage points. </p

Frank Nothaft, Freddie Mac vicernpresident and chief economist said, “On average, borrowers who refinancedrnreduced their interest rate by about 1.7 percentage points. On a $200,000 loan,rnthat translates into saving about $3,500 in interest during the next 12rnmonths.  Fixed-rate mortgage rates hit new lows during September, with 30-yearrnproduct averaging 3.5 percent and 15-year averaging 2.8 percent that month,rnaccording to our Primary Mortgage Market Survey®”. </p

Nothaft said the Survey also foundrnthat 82 percent of loan applications during the third quarter were forrnrefinance, matching the record share of the fourth quarter of 2010 so FreddiernMac has boosted its origination projection for the second half of 2012 tornaccount for the additional refinance activity expected.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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