NEW YORK, July 30 (Reuters) - The share of U.S. homeowners who tapped home equity when refinancing their home loans fell in the second quarter to the lowest level since the third quarter of 2003, according to a report released on Thursday by home funding company Freddie Mac FRE.P FRE.N.
The share of refinance loans resulting in new loan amounts that were at least 5 percent higher than the paid-off second-lien mortgage balances fell to 38 percent in the second quarter; the first-quarter cash-out share was revised down to 43 percent, according to Freddie Mac’s quarterly Refinance Report.
Half of borrowers who refinanced their home loan in the second quarter lowered their annual mortgage interest rate by at least 20 percent, the report said.
Freddie Mac said the new interest rate was about 1.25 percentage points below the old rate and in aggregate the interest-rate reduction adds up to about $3.4 billion in payment savings for these homeowners over the next year,
“Interest rates for fixed-rate conventional conforming mortgages hit 50-year lows during the second quarter of 2009,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.
“In Freddie Mac’s Primary Mortgage Market Survey rates for 30-year fixed rate mortgages averaged just 5.03 percent over the quarter with 0.7 points, and twice hit an all-time weekly average low of 4.78 percent in April,” he said.
A big part of the benefit of refinancing is the lower monthly payment that borrowers enjoy - the payment savings from ‘rate-and-term’ refinancing done during the quarter is about $160 a month on a $200,000 loan, but these borrowers also accumulate principal faster than they would have with a higher-rate loan even after taking into account the longer terms of the new loans, he said.
“In aggregate, second-quarter refinancers will have about $200 million additional principal paydown after a year than they would have under their old loans,” he said.
Fixed mortgage rates are still very low, although they have climbed up a bit from their April lows, he said.
“We are anticipating more than one-half of originations to be for refinancing throughout the rest of the year as long as rates stay near their current levels of 5.25 percent,” he said.
The report also indicates that 62 percent of prime borrowers who refinanced a conventional, second-lien mortgage either kept the same principal balance or reduced it, up from a revised 57 percent in the first quarter.
“In the second quarter, about $25 billion in home equity was cashed out by homeowners when they refinanced their conventional prime-credit home mortgage,” Amy Crews Cutts, Freddie Mac deputy chief economist, said in a statement.
Credit standards are quite strict today for cash-out refis, and borrowers need a significant equity cushion to contemplate equity extraction, she said.
“That’s why cash-out volumes are 35 percent lower now than a year ago even though interest rates are so low,” she said. (Reporting by Julie Haviv; Editing by Diane Craft)