Homeowners Continue Shorten Loan Terms, Saving Billions

Homeowners whornrefinanced in the first quarter of 2013 maintained the approximaterncash balance of the loan they were refinancing but in more than onernquarter of the cases, they shortened the term of their new loan.</p

Freddie Mac’s quarterlyrnrefinance analysis showed that borrowers in the first quarter, takingrnadvantage of record low interest rates, will save an aggregate ofrnapproximately $7 billion in interest over the next 12 months. Thesernborrowers, by an overwhelming margin, opted to insure they will keeprnthose rates as 95 percent chose fixed rate loans. </p

The cash-out refinancingrnboom which came to a screeching halt with falling house prices andrnstricter lending standards shows no sign of resurgence. The netrndollars of home equity converted to cash through refinancing remainedrnat a low consumer-price adjusted volume of $8.1 billion, about thernsame as in the fourth quarter of 2012. During the second quarter ofrn2006, at the peak of cash-out activity, borrowers took $84 billion inrncash from their homes. Only about 15 percent of refinancingrnborrowers took cash out in the most recent period while about threernpercent lowered the principal balance of their mortgage by payingrncash-in.</p

Twenty-eight percent of borrowers whornrefinanced during the quarter shortened their loans terms while 68rnpercent kept the same term and 3 percent opted for a longer termrnloan.</p

Loans through the Home Affordable Refinance Program (HARP) made uprnjust over 20 percent of the refinance loans purchased during thernfirst quarter by Freddie Mac and Fannie Mae. Property-value change,rnloan age, and rate reduction differed between refinancings under HARPrnand other refinances. </p

HARP loans evidenced a median depreciation in property value of 28rnpercent while properties refinanced through non-HARP programs hadrnvary little change in value between the dates the old loans were putrnin place and the new loan was closed. Loans refinanced through HARPrnhad a median age of about six years (to be eligible for HARP, thernprior loan had to be originated before June 1, 2009), and the medianrnfor other loans was 4.1 years. HARP borrowers with a 30-yearrnfixed-rate refinance (no product change) had an average interest-raternreduction of 2.1 percentage points other borrowers, in the samerncircumstances, had an average interest rate decline of 1.6 percentagernpoints. </p

Frank Nothaft, Freddie Mac vice president andrnchief economist said, “Borrowers continue to strengthen theirrnfiscal house by taking advantage of near record low mortgage rates.rnIn total, borrowers who refinanced in the first quarter of this yearrnwill save approximately $7 billion in interest payments over the nextrn12 months, which they can put towards savings, paying down debt or tornsupport additional expenditures. Further, the estimated $8 billion inrn’cash-out’ activity will further augment borrowers’ investment andrnconsumption spending.”

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