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2013 Refinancers Projected to Save $21B in 2014

Borrowers who refinanced last year will save on net about $21 billion in interest over 2014, according to the results of ""Freddie Mac's"":http://www.freddiemac.com/ latest ""quarterly refinance analysis"":http://freddiemac.mwnewsroom.com/press-releases/borrowers-who-refinanced-in-2013-saving-over-21-b-otcqb-fmcc-1087176.

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The company's report, released Wednesday, shows the average interest rate reduction among refinancers in the fourth quarter was about 1.5 percentage points, translating into a savings of about 25 percent. Those who refinanced through the Home Affordable Refinance Program (HARP) during Q4 saw an average rate reduction of 1.7 percentage points, meanwhile.

The median age of original loans outstanding before refinance was 7.0 years last quarter, the highest since Freddie Mac began conducting its analysis in 1985. The increase in age reflects the low-rate period the market has experienced in the past four years, which would have given few homeowners with recent loans very much incentive to refinance, the company says.

In fact, it seems fewer homeowners overall were as interested in refinancing in the fourth quarter as they had been in the last several years.

""[T]he refinance boom continued to wind down as the pool of potential borrowers declined and as mortgage rates increased during the second half of 2013,"" said Frank Nothaft, VP and chief economist for Freddie Mac.

The GSE projects refinance share this year will continue to fall, slipping to 38 percent of all originations as ""the emerging purchase market consumes a bigger piece of the pie.""

Of those who did refinance last quarter, more than 95 percent chose a fixed-rate loan, with those products being preferred regardless of what the original loan had been. For example, 94 percent of borrowers who previously had a hybrid adjustable-rate mortgage (ARM) refinanced into a fixed-rate loan, while only 3 percent went in the opposite direction.

Freddie Mac also found 39 percent of last quarter's refinancers opted to shorten their loan term, up 2 percent from Q3 and the highest level since 1992. About 56 percent of borrowers kept the same term as the loan they paid off, and only 5 percent lengthened their term.

Meanwhile, the net dollars of home equity converted to cash as part of a refinance remained low in comparison to historical volumes. According to the report, an estimated $6.5 billion in home equity was cashed out during refinances of conventional prime-credit home mortgages in Q4, down from a peak of $84 billion during Q2 2006.

Adjusted for inflation, Freddie Mac says annual cash-out volumes from 2010-2013 have been the smallest since 1997.

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