Cash-Out Refinancing Ticks Higher As Boom Ends
The refinance boom is over. Freddie Mac's latest Refinance Report shows that the refinance boom the industry has seen since the onset of the Great Recession ended in the second quarter of 2014. The share of borrowers refinancing fell below 50 percent for the first time since the third quarter of 2008. This represents the longest boom since Freddie Mac started its quarterly Refinance Report in 1990. The full report and statistics are available on our Housing & Economic Research site.
Here are a few of the highlights from this quarter's refinance report.
- Of borrowers who refinanced during the second quarter of 2014, 40 percent shortened their loan term, approximately the same as the previous quarter and the highest since 1992.
- In the second quarter, an estimated $7.8 billion in net home equity was cashed out during a refinance of conventional prime-credit home mortgages, up from the revised $5 billion last quarter. Adjusted for inflation, annual cash-out volumes during 2010 through 2013 have been the smallest since 1997.
- In aggregate, U.S. home equity grew by an estimated $4.1 trillion during the two-year period through March 31, 2014. Much of this gain was attributable to home value gains.
- The average mortgage interest rate reduction in the second quarter was about 1.4 percentage points - or a savings of about 24 percent. On a $200,000 loan, that translates into interest savings of about $2,800 during the next 12 months.
- Homeowners who refinanced through HARP during the second quarter of 2014 benefited from an average mortgage interest rate reduction of 1.6 percentage points and will save an average of $3,200 in interest payments during the first 12 months, or about $260 every month. (Could you, or someone you know benefit from HARP?)
- About 79 percent of those who refinanced their first-lien home mortgage maintained approximately the same loan amount or lowered their principal balance by paying in additional money at the closing table, down 4 percent from the previous quarter. The peak was 88 percent during the second quarter of 2012.
- The median age of the original loan outstanding before refinance increased to 7.3 years during the first quarter, the most since the analysis began in 1985 and unchanged from the previous quarter.
We estimate more than 25 million American borrowers refinanced their loans to the tune of over $70 billion in total interest payment savings during this most recent refinance boom. At the same time, homeowners cashed-out approximately $215 billion in home equity when they refinanced, adjusted for inflation. During the 2001-2004 refinance boom we saw over $600 billion in cash-out refinancing. With the second quarter data in, adjusted for inflation, American's are taking equity out of their homes when refinancing at about same level we saw in the mid-to-late 90's. So, even with recent house price gains and rock-bottom, record-setting, all-time low mortgage interest rates we experienced over the past 4 years, American households are not cashing out equity at rates we've seen in recent history.