Borrowers who refinanced in 2013 “overwhelmingly” chose long-term fixed rate mortgages, according to Freddie Mac. Although borrowers still took advantage of comparatively low interest rates to refinance, the demand for refis continued to dwindle, according to Freddie Mac Vice President and Chief Economist Frank Nothaft.
“Our latest refinance report shows the refinance boom continued to wind down as the pool of potential borrowers declined and as mortgage rates increased during the second half of 2013,” Nothaft said. “We are projecting the refinance share will be just 38 percent of all originations in 2014 as refinance falls off further and the emerging purchase market consumes a bigger piece of the pie.”
Of borrowers who refinanced in the fourth quarter, 39% shortened their loan terms, according to Freddie Mac. That’s up 2% from the previous level and the highest percentage since 1992. Fifty-six percent of refinancing borrowers kept the same loan term, while only 5% of borrowers chose to lengthen their terms.
More than 95% of refinancing borrowers chose a fixed-rate loan. Fixed-rate loans were overwhelmingly preferred no matter what the borrowers’ original loan products had been, Freddie Mac reported.
The average interest rate reduction for Q4 refis was about 1.5 percentage points, according to Freddie Mac. That translates to a savings of about $3,000 in interest on a $200,000 loan over the next 12 months. Homeowners who refinanced through the Home Affordable Refinance Program
) saw an average rate reduction of 1.7 percentage points, which would save an average of $3,300 in interest during the first year.
Borrowers who refinanced their mortgages in 2013 will save a net of about $21bn over the next 12 months, according to data released Wednesday by Freddie Mac.