Americans continue to refinance with new
loans the same size or smaller than the loans they are replacing. Freddie Mac's third quarter refinance
analysis shows that 54 percent of homeowners who refinanced during the third
quarter of 2012 took new loans of approximately the same size as the old and 29
percent brought funds to the table to reduce their mortgage balance. The aggregate 83 percent is only slightly
below the record 85 percent of non-cash out borrowers in the fourth quarter of
The 17 percent of homeowners who took
out a new loan more than 5 percent larger than the old loan, Freddie Mac's
definition of a cash-out refinancing, is the same as in the second quarter and
the third quarter of 2011. These numbers
are a vast departure from cash-out percentages during the period from Q4 2005
to Q3 2007 which always exceeded 80 percent.
who refinanced reduced their interest rate by an average of 1.7 percentage
points or a savings of about 31 percent in interest rate, the largest percent
reduction in the 27 years Freddie Mac has been tracking the data.
The net dollars of home equity
converted to cash as part of a refinance, adjusted for consumer-price
inflation, remained at a low volume. In the third quarter, an estimated $7.7
billion in net home equity was cashed out during the refinance of conventional
prime-credit home mortgages, up from an estimated $5.9 billion in the second
quarter, but substantially less than during the peak cash-out refinance volume
of $84 billion during the second quarter of 2006. An additional $8.7 billion was added to loan
balances due to consolidation of second mortgages or home equity lines of
The median age of the loans that
were refinanced was 4.8 years compared to 5.1 years in the previous
quarter. Freddie Mac found that the
median appreciation of the collateral property over the life of the old loan
was -10 percent, down from -16 percent in the second quarter but double the
rate one year earlier. Collateral appreciation
has been negative since the third quarter of 2009.
Many of the loan metrics differed
between refinancing done under the Home Affordable Refinance Program (HARP) and
other refinances. The median collateral appreciation of HARP refinanced loans
was -31 percent over a prior loan life of 5.6 years and the average HARP
borrower had an interest rate reduction of 2 percentage points.
Frank Nothaft, Freddie Mac vice
president and chief economist said, "On average, borrowers who refinanced
reduced their interest rate by about 1.7 percentage points. On a $200,000 loan,
that translates into saving about $3,500 in interest during the next 12
months. Fixed-rate mortgage rates hit new lows during September, with 30-year
product averaging 3.5 percent and 15-year averaging 2.8 percent that month,
according to our Primary Mortgage Market Survey®".
Nothaft said the Survey also found
that 82 percent of loan applications during the third quarter were for
refinance, matching the record share of the fourth quarter of 2010 so Freddie
Mac has boosted its origination projection for the second half of 2012 to
account for the additional refinance activity expected.