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First-Quarter Refinance Stats Point to Equity Build-Up

refinanceFreddie Mac released Wednesday the results of its first-quarter refinance analysis, with findings showing a growing number of borrowers choosing to refinance into shorter loan terms as home equity grows nationwide.

According to the enterprise’s report, 39 percent of refinancers last quarter chose to shorten their term, up slightly over the prior quarter and the highest share since 1992.

At the same time, an estimated $6.5 billion in net home equity was cashed out during conventional prime-credit refinances in Q1, flat from Q4 2013 and down from year-ago levels—even as the share of borrowers extracting home equity rose, notes Frank Nothaft, chief economist for Freddie Mac.

“Roughly 17 percent of borrowers who refinanced in the first quarter chose to extract home equity versus 14 percent from the same time last year,” Nothaft said. “However, even with the slight increase in the cash-out share, it’s still $2 billion less compared to the first quarter of last year simply because the refinance share of originations continues to plummet.”

Together, the rise in shorter terms and the relatively low cash-out share suggest borrowers are seeking to strengthen their own equity positions as home values continue to rise. In total, U.S. home equity expanded by an estimated $2.1 trillion over the course of 2013, according to the Federal Reserve.

The average mortgage interest rate reduction in Q1 was 1.4 percentage points, meaning a savings of about 24 percent on average. On a $200,000 loan, Freddie Mac estimates refinancers taking the average interest reduction will save $2,800 over the next year.

For those who refinanced through the Home Affordable Refinance Program (HARP), the average reduction was 1.6 percentage points, creating average savings of $3,200 over the year.

Overall, the company says borrowers will save on net more than $1 billion in interest payments in the next 12 months.


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