[1]This week, Freddie Mac [2] released the results of its Quarterly Refinance Analysis [3] for the first quarter of this year, revealing that borrowers lowered their monthly mortgage payment and shortened their long-term payment by taking advantage unexpectedly low mortgage rates. Refinance activity accounted for 63 percent of all single-family originations.
According to Freddie Mac, approximately 27 percent of borrowers increased their loan amount when refinancing, either by cashing out equity or consolidating loans, versus 29 percent from last quarter, 17 percent from the same time last year and well below the peak of 89 percent in 2006.
"Many homeowners took advantage of low mortgage rates by refinancing in the first quarter of 2015,” said Len Kiefer, Freddie Mac Deputy Chief Economist. “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.”
Thirty-four percent of borrowers who refinanced during the first quarter of 2015, shortened their loan term, down slightly from the previous quarter. Of eligible borrowers who used the Home Affordable Refinance Program (HARP), 36 percent shortened their term. More than one-third of HARP borrowers shortened their term over the past four quarters.
“Refinance borrowers are primarily looking to reduce payments and pay down principal faster,” Keifer said. “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."
Quarterly Refinance Facts:
- The net dollars of home equity converted to cash as part of a refinance remained low compared to historical volumes. In the first quarter, an estimated $7.7 billion in net home equity was cashed out during a refinance of conventional prime-credit home mortgages, down from the revised $7.6 billion the previous quarter in 2014 dollars.
- The average interest rate reduction in the first quarter was about 1.2 percentage points—a reduction of about 24 percent.
- About 73 percent of those who refinanced their first-lien home mortgage maintained about the same loan amount or lowered their principal balance by paying in additional money at the closing table, about the same as last quarter.
- More than 95 percent of refinancing borrowers chose a fixed-rate loan. Fixed-rate loans were preferred regardless of what the original loan product had been.
- For all other (non-HARP) refinances during the fourth quarter, the median property value was up 5 percent between the dates of placement of the old loan and the new refinance loan. The prior loan had a median age of 5.6 years down from 6.8 years in the fourth quarter of 2014.
See the full report at FreddieMac.com/Finance [3].