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June 11th, 2013

Freddie: Most refinancing borrowers want 30-year fixed-rate loans

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30Homeowners who refinanced during the first quarter of 2013 locked in low fixed interest rates, reduced monthly mortgage payments and, in some cases, refinanced into shorter terms, according to a recent quarterly Freddie Mac report.

Borrowers took advantage of near-record-low mortgage rates to continue to strengthen their financial position, Freddie Mac Chief Economist Frank Nothaft said in a statement.

“In total, borrowers who refinanced will save approximately $7 billion in interest payments over the next 12 months, which they can put towards savings, paying down debt or to support additional expenditures,” Nothaft said.

Low fixed-rate loans

More than 95 percent of borrowers who refinanced during the first quarter obtained a fixed-rate loan, Freddie Mac said.

Sixty-eight percent of borrowers kept the same loan term. Twenty-eight percent shortened their term, and 3 percent lengthened it.

Slightly more than 20 percent utilized the Home Affordable Refinance Program (HARP), which allows some property owners to refinance even if they owe more than their property’s current value.

HARP borrowers refinanced loans with a median age of about 6 years and obtained new loans with an average interest-rate reduction of 2.1 percent, Freddie Mac said. Non-HARP borrowers refinanced loans with a median age of 4.1 years and obtained new loans with an average interest-rate decline of 1.6 percent.

Less cashing out

Home equity cash-out activity remained at a low level during the quarter.

Eighty-five percent of borrowers who refinanced obtained a new loan for the same amount or lowered their principal balance by cashing-in additional money at closing, Freddie Mac said.

Borrowers cashed out an estimated $8.1 billion, approximately the same amount that was cashed out during the previous quarter and substantially less than the peak cash-out volume of $84 billion in the second quarter of 2006.

“The estimated $8 billion in cash-out activity will further augment borrowers’ investment and consumption spending,” Nothaft said.

The refinance boom, now in its fourth year, appears to have peaked as loan activity has begun to shift toward purchase-money applications. That trend might be expected to continue as interest rates have risen in recent weeks, making refinancing less attractive.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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