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Positive Borrower Behavior Resulting from Refinancing

How are distressed borrowers reacting to refinancing services? According to results of a new survey by ""Freddie Mac,"":http://www.freddiemac.com/ borrowers who were given the chance to refinance their mortgages showed a 77 percent success rate in maintaining or reducing their loan debt.

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The second-quarter numbers were promising for lenders dolling out refinancing options, and Freddie Mac reports that 26 percent of homeowners who exercised refinancing methods lowered their principal balance during the period. The median interest rate adjustment for 30-year fixed-rate mortgages was around 1 percent, resulting in average savings of 18 percent on most interest rates.

Fifty-one percent of borrowers maintained roughly the same loan balance, and only 23 percent showed an increase in principal on their mortgage loan.

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Other notable second quarter findings included a net home equity cash conversion on conventional, prime-credit home mortgages of $7.5 million during the time frame, which is similar to first quarter statistics yet still down from the height of refinance volume.

Combined statistics from the first two quarters of the year display that the amount of cashed-out equity recorded during the period was at at 15-year low.

Commenting on recent numbers, Freddie Mac's vice president and chief economist said, ""This is primary a 'rate-and-term' market, meaning that the typical homeowner is looking to cut their interest rate or shorten their loan term. More than three-in-four borrowers are keeping their loan balance about the same or reducing their loan balance when they refinance.

Savvy homeowners are taking advantage of some of the lowest fixed-rates in more than 50 years to lock in interest savings.""

Freddie Mac's survey was conducted by looking at sample properties on which the entity has funded two sequential and conventional, first-mortgage loans, with the most recent loan having been refinanced.

Statistical results do not monitor the utilization of funds made available from refinancing, nor does it follow loans that are paid of entirely with no fresh loan in place.

About Author: Abby Gregory

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