Freddie Mac released the results of its 1Q12 refinance analysis. The study showed that homeowners who refinance are still strengthening their fiscal position.
In 1Q12, the GSE said that 79% of homeowners who refinanced their first-lien home mortgage either maintained roughly the same loan amount or lowered their principal balance.
These borrowers did this by paying-in added money at the closing table. Of these borrowers, 58% still have roughly the same loan amount while 21% of refinancing homeowners lowered their principal balance. The borrower share that kept roughly the same loan amount was the highest in the analysis' 26-year history.
"Cash-out" borrowers or those that increased their loan balance by at least 5%, comprised 21% of all refinance loans. The weighted average cash-out share in the 1985 to 2008 period was 50%.
The median interest rate reduction for a 30-year fixed-rate mortgage was roughly 1.5 percentage points. This is equal to interest rate savings of roughly 27% , the largest percent reduction recorded in the firm's 27 years of analysis. In the first year of the refinance loan life, the median borrower will save approximately $2,900 in interest payments on a $200,000 loan.
The net dollars of home equity converted to cash as part of a refinance, adjusted for inflation, was at the lowest level in close to 17 years or since the 3Q95. In 1Q12, a projected $5.3 billion in net home equity was cashed out via the refinancing of conventional prime-credit home mortgages. This decreased from $7 billion in 4Q11 and substantially less than during the peak cash-out refinance volume of $83.7 billion in 2Q06.
Among the refinanced loans in the GSE's analysis, the median prior loan life was 4.3 years. One-half of the loans that were paid-off had been in place from between three and seven years, that is, had been originated between 2005 and 2009.
"The typical borrower who refinanced reduced their interest rate by about 1.5 percentage points. On a $200,000 loan, that translates into saving about $2,900 in interest during the next 12 months," said Frank Nothaft, Freddie Mac vice president and chief economist.
He added that the fixed-rate mortgage rates hit new lows in March when the 30-year product averaged 3.95%t and 15-year averaging 3.20% that month, reported the firm's primary mortgage market survey®.
"The enhancements to HARP announced in October, such as removing the maximum loan-to-value limit, are beginning to show up in additional refinance volume during the first quarter," Nothaft said. "HARP loans were 20% of Freddie Mac's refinance fundings during the first quarter, the highest share since HARP's inception."