The first quarter of 2015 was the third in a row that more than half of the refinances funded through Freddie Mac were cash out transactions. The company said that 27 percent of its refinancing loans were cash out compared to 27 and 28 percent in the third and fourth quarters of 2014 respectively. In the first quarter of last year cash-outs represented 17 percent of the total.
The net dollars of home equity withdrawn in the quarter during refinance of conventional prime-credit home mortgages was estimated at $7.7 billion, down slightly from the fourth quarter. This pales in comparison to the $84 billion in equity withdrawn in the second quarter of 2006, a year when 89 percent of refinancing was cash out.
Thirty-four percent of all refinancing borrowers and 36 percent of borrowers who utilized the Home Affordable Refinance Program (HARP) shortened the term of their loan. HARP offers an incentive to borrowers to rebuild equity in this manner and Freddie Mac said during the past four quarters more than one-third of HARP borrowers had done so.
Borrowers who refinanced during the first quarter shaved an average of 1.2 percentage points off of their interest rate; an average reduction of about 24 percent or a $2,500 savings over 12 months on a $200,000 loan. HARP borrowers reduced their rate by an average of 1.8 point saving about $3,500 in the first year or $290 per month.
The vast majority of refinancing was into fixed-rate loans, 95 percent of the total. Seventy-six percent of those refinancing from hybrid adjustable rate mortgages (ARMs) chose a fixed rate while only 3 percent went from a fixed rate to an ARM
HARP loans are intended for borrowers who have negative or minimal equity in their homes, but for properties securing non-HARP refinances the property value was up 5 percent from the time of the old loan placement and the closing of the new loan, (4th quarter 2014 data). Loan refinanced in the first quarter had a median age of 5.6 years, down from 6.8 years in the fourth quarter of 2014.
Len Kiefer, Freddie Mac deputy chief economist, said, "Many homeowners took advantage of low mortgage rates by refinancing in the first quarter of 2015. Relatively younger loans refinanced as the median age of a refinanced loan declined to 5.6 years, down from 6.8 years in the prior quarter. Refinance borrowers are primarily looking to reduce payments and pay down principal faster. We estimate that borrowers who refinanced in the first quarter will save on net more than $1.4 billion in interest payments over the first 12 months of their new loan. Nearly a third of borrowers who refinanced shortened their loan term."
