Cash-Out Refinancing at New Lows in Volume, Value

The number of homeowners who refinancedrnwith “cash out” continued to decline in the third quarter according torninformation released on Monday by Freddie Mac. rnEighty-two percent of borrowers who refinanced their mortgages duringrnthe period either maintained about the same loan amount or lowered theirrnmortgage balance by bringing money to the table.  During the second quarter 77 percent ofrnrefinances fell into this category.   </p

Of those who refinanced, 44 percentrnmaintained approximately the same loan amount and 37 percent reduced thernprincipal balance.  Eighteen percent ofrnrefinancing homeowners increased their loan by more than 5 percent, Freddie Mac’srndefinition of cash out.  Over the periodrnfrom 1985 to 2010 the average percentage of cash out refinances was 46rnpercent.  </p

Homeowners took an estimated $5.3rnbillion in equity out of their homes. rnThis was the lowest amount of equity removed from the system since thernthird quarter of 1995 and was substantially below the $6.3 billion cashed out inrnthe second quarter.  In the peak year forrncash out refinancing volume (Q2 2006) there was $83.7 billion refinanced out ofrnhome mortgages. </p

Homeowners had a median rate reductionrnthrough refinancing a 30-year fixed-rate mortgage of about 1.2 percentagernpoints or a 22 percent improvement in their rate, saving them about $2,500 overrnthe first five years of a new $200,000 loan. rnThe median rate reduction in the second quarter was 1 percent.</p

Freddie Mac’s figures indicate that thernborrowers who refinanced in the third quarter owned homes that had lost arnmedian of 7 percent in value over the median of 5 years that the old mortgagernhad been in place.  As Freddie Mac’srnHouse Price Index shows about a 25 percent decline in its U.S. series betweenrnSeptember 2006 and September 2001, appraisals that these homes had either heldrntheir value better than the average home or had benefitted from value-enhancingrnimprovements  

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