Monday, November 7, 2011

Cash Out?

The number of homeowners who refinanced with "cash out" continued to decline in the third quarter according to information released on Monday by Freddie Mac. Eighty-two percent of borrowers who refinanced their mortgages during the period either maintained about the same loan amount or lowered their mortgage balance by bringing money to the table. During the second quarter 77 percent of refinances fell into this category.

Of those who refinanced, 44 percent maintained approximately the same loan amount and 37 percent reduced the principal balance. Eighteen percent of refinancing homeowners increased their loan by more than 5 percent, Freddie Mac's definition of cash out. Over the period from 1985 to 2010 the average percentage of cash out refinances was 46 percent.

Homeowners took an estimated $5.3 billion in equity out of their homes. This was the lowest amount of equity removed from the system since the third quarter of 1995 and was substantially below the $6.3 billion cashed out in the second quarter. In the peak year for cash out refinancing volume (Q2 2006) there was $83.7 billion refinanced out of home mortgages.

Homeowners had a median rate reduction through refinancing a 30-year fixed-rate mortgage of about 1.2 percentage points or a 22 percent improvement in their rate, saving them about $2,500 over the first five years of a new $200,000 loan. The median rate reduction in the second quarter was 1 percent.

Freddie Mac's figures indicate that the borrowers who refinanced in the third quarter owned homes that had lost a median of 7 percent in value over the median of 5 years that the old mortgage had been in place. As Freddie Mac's House Price Index shows about a 25 percent decline in its U.S. series between September 2006 and September 2001, appraisals that these homes had either held their value better than the average home or had benefitted from value-enhancing improvements