Saturday, 04 June 2011
Less Cash Out Refinancing
3 out of 4 of borrowers who refinanced their mortgage in the 1st quarter of 2011 either maintained about the same loan amount or lowered their principal balance. 54% maintained about the same loan amount, the highest level since 1985, when Freddie Mac began keeping records on mortgage refinancing patterns. 21% of refinance mortgage borrowers reduced their principal balance.
Refinancing with at least 5% cash out represented 25% of all refinance loans, compared to a 62% average over the past 25 years, a 40% decrease.
15 Year Low for Cash Out Refinancing
The net dollars of home equity converted to cash as part of a refinance, adjusted for inflation, was at the lowest level in 15 years. In the first quarter, an estimated $6 billion in net home equity was cashed out from the refinance of conventional prime-credit home mortgages, down from $9 billion in the fourth quarter, and substantially less than during the peak cash-out refinance volume of $83 billion during the second quarter of 2006.
The median rate reduction for a 30-year fixed mortgage rate was about 1.2 points, or a savings of about 20% in interest costs. Over the first year of the refinance loan life, these borrowers will save over $1,800 in interest payments on a $200,000 loan.
Majority are Fixed Rate Loans
In the first quarter of 2011, fixed rate mortgages accounted for more than 95% of refinance loans. Refinancing borrowers overwhelmingly chose fixed mortgage rates, regardless of whether their original loan was an adjustable rate mortgage or a fixed rate.
84% of borrowers who had a hybrid ARM chose to refinance into a fixed rate mortgage during the first quarter, continuing a pattern of the past few years of borrowers revealing a strong preference for fixed rate loans over adjustable rate loans.
Shorter Loan Terms
An increasing share of refinance borrowers chose to shorten their loan terms. Of borrowers who paid off a 30 year fixed rate mortgage, 34% chose a 15 year or 20 year loan, the highest share since the first quarter of 2004.
The Fannie Mae housing forecast for 2011 says that 30 fixed mortgage rates may rise about .3% by the end of the year, and as a result, the adjustable rate share of market may increase as much as 20% over the current level. Over the remainder of the year, the refinance share of market may decline about 15%, while the application volume of purchase home loans increase.