Borrowers inching back into Cash-Out Refinancing

Thernfirst quarter of 2015 was the third in a row that more than half of thernrefinances funded through Freddie Mac were cash out transactions.   The companyrnsaid that 27 percent of its refinancing loans were cash out compared to 27 and 28rnpercent in the third and fourth quarters of 2014 respectively.  In the first quarter of last year cash-outsrnrepresented 17 percent of the total.</p

Thernnet dollars of home equity withdrawn in the quarter during refinance ofrnconventional prime-credit home mortgages was estimated at $7.7 billion, downrnslightly from the fourth quarter.  This palesrnin comparison to the $84 billion in equity withdrawn in the second quarter ofrn2006, a year when 89 percent of refinancing was cash out.</p

Thirty-fourrnpercent of all refinancing borrowers and 36 percent of borrowers who utilizedrnthe Home Affordable Refinance Program (HARP) shortened the term of their loan.   HARP offers an incentive to borrowers to rebuildrnequity in this manner and Freddie Mac said during the past four quarters morernthan one-third of HARP borrowers had done so. </p

Borrowersrnwho refinanced during the first quarter shaved an average of 1.2 percentagernpoints off of their interest rate; an average reduction of about 24 percent orrna $2,500 savings over 12 months on a $200,000 loan.  HARP borrowers reduced their rate by anrnaverage of 1.8 point saving about $3,500 in the first year or $290 per month. </p

Thernvast majority of refinancing was into fixed-rate loans, 95 percent of therntotal.  Seventy-six percent of thosernrefinancing from hybrid adjustable rate mortgages (ARMs) chose a fixed raternwhile only 3 percent went from a fixed rate to an ARM</p

HARP loans are intended for borrowersrnwho have negative or minimal equity in their homes, but for properties securingrnnon-HARP refinances the property value was up 5 percent from the time of thernold loan placement and the closing of the new loan, (4^th quarterrn2014 data).  Loan refinanced in the firstrnquarter had a median age of 5.6 years, down from 6.8 years in the fourthrnquarter of 2014.  </p

Len Kiefer, Freddie Mac deputy chiefrneconomist, said, “Many homeowners took advantage of low mortgage rates byrnrefinancing in the first quarter of 2015. Relatively younger loansrnrefinanced as the median age of a refinanced loan declined to 5.6 years, downrnfrom 6.8 years in the prior quarter. Refinance borrowers are primarily lookingrnto reduce payments and pay down principal faster. We estimate that borrowersrnwho refinanced in the first quarter will save on net more than $1.4 billion inrninterest payments over the first 12 months of their new loan. Nearly a third ofrnborrowers who refinanced shortened their loan term.”

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