Homeowners Save $3 Billion by Refinancing Mortgages

U.S. homeowners who refinanced their mortgages in the first nine months of the year will save a combined $3 billion over the first 12 months of their new loan, government supported lender Freddie Mac is reporting.

Interest rates over the first nine months of the year averaged 5.1 percent on 30-year fixed-rate loans, the lowest in the nearly 40 years Freddie Mac has been tracking such data. Borrowers who refinanced in the third quarter of the year reduced their interest rate by an average of 1.1 percentage points off their old loan, with at least half of all borrowers reducing their mortgage interest rate by at least 17 percent.

With the steep declines in home values over the past three years, relatively few borrowers opted for cash-out refinances, borrowing against the equity in their homes to obtain money for home improvement projects or other purposes. Only 36 percent of all refinances resulted in new loan balances that were 5 percent or more higher than the original loan, a marked departure from the patterns of a few years ago.

“Over the first three quarters of this year, the aggregate amount cashed out (when refinancing) has been approximately $60 billion,” said Amy Crews Cutts, Freddie Mac deputy chief economist.  “Adjusting for inflation, this was the smallest volume of equity extraction over the first three quarters of a year since 2000.”

Crews said the main cause of the decline in cash-our refinances is that homeowners have less home equity to work with. She said the media property refinanced in the third quarter of the year has shown zero appreciation in price since the previous mortgage was obtained, an average of three and a half years earlier.

The report also noted increasing momentum in the government’s Homeownership Affordability Refinance Program, which is designed to assist homeowners with little or no equity in their homes obtain refinancing, but which got off to a slow start following its launch in April. The new figures show that 93,000 homeowners have now refinanced mortgages under the program, with the bulk of them in July and August.