Cash-Out Refinancing at New Lows in Volume, Value


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

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

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