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Refinancing Falls Further; Cash-Outs Tick Up

refinance-appAfter fizzling out over the past several quarters, the post-recession refinance boom officially ended in the quarter, according to data from Freddie Mac.

The mortgage behemoth released on Tuesday the results of its quarterly refinance analysis for Q2, showing that refinancing fell in the last three months to below 50 percent of total mortgage activity as rising interest rates have stifled demand.

In the past six years since the boom first kicked off, Freddie Mac estimates more than 25 million American borrowers have refinanced their loans, resulting in savings of more than $70 billion in interest payments.

At the same time, those years also saw only $215 billion in home equity cash-outs. For reference, cash-out refinance volume peaked at $86 billion in the second quarter of 2006 alone.

"Even with recent home price gains and rock-bottom interest rates, American households are not cashing out equity at rates we've seen historically," said Frank Nothaft, VP and chief economist at Freddie Mac, adding that recent low volumes reflect "how much equity was lost during the Great Recession."

In just the latest quarter, an estimated $7.8 billion in net home equity was cashed out during refinances of conventional prime-credit home mortgages, up from a revised $5 billion in the first quarter.

Out of those who refinanced last quarter, Freddie Mac reports the average interest rate reduction was about 1.4 percentage points, or a savings of about 24 percent.

Those who refinanced through the Home Affordable Refinance Program (HARP) cut their interest rates by an average 1.6 percentage points.

Altogether, the company estimates borrowers who refinanced last quarter will save more than $1 billion in interest payments over the coming year.

Freddie Mac also reported that 40 percent of refinancers last quarter chose to shorten their loan term, approximately the same share as the prior quarter and the highest share since 1992.

"Regardless of the minimal level of cash-out refinance activity, when we couple it with lower mortgage rates and shorter terms homeowners have taken out through refinance over the past couple years, they have accelerated principal pay down and contributed to the rebound in home-equity accumulation," Nothaft said.


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