Refinancers still coming out on top

by Ryan Smith14 Aug 2013

Refinancers are still reaping benefits from cheaper loans, in spite of recent rises in mortgage rates.

Borrowers are taking advantage of low mortgage rates to shrink their monthly payments and shorten their loan terms, according to a quarterly refinance report released by Freddie Mac Tuesday. Homeowners who refinanced their mortgage in the second quarter will see combined net savings of $6bn over the next year, Freddie reported.

Home equity dollars converted to cash during refinancing rose slightly Q2 to $9.5bn – still low compared to past volumes, according to Freddie, and far short of 2006’s peak cash-out volume of $84bn.

“Borrowers’ refinance characteristics remained fairly consistent with the previous quarter. The cash-out amount, while increasing, continues to remain low by historical standards,” said Frank Nothaft, Freddie Mac vice president and chief economist.“And with mortgage rates still near their historic lows, over 30 percent of refinancing borrowers chose to shorten their loan term.”

An overwhelming number of refinancing borrowers – more than 95% -- chose a fixed-rate mortgage, regardless of what their original loan product had been. For example, 79% of refinancing borrowers who originally obtained a hybrid adjustable-rate mortgage chose to refi with a fixed rate, while only 2% of those who originally chose a fixed-rate mortgage chose to refinance with an ARM.

According to Freddie, the average refinancing borrower saw his interest rate reduced by about 1.9 percentage points – a savings of about $3,700 in interest on a $200,000 loan over the next 12 months.  Homeowners who refinanced through HARP in Q2 will see an average savings of about $4,300 over 12 months.


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