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February 04, 2015

Borrowers Who Refinanced in 2014 to Save About $5 Billion in Interest Payments

Research and Analysis

Borrowers who refinanced in 2014 will save on net approximately $5 billion in interest over the first 12 months of their new loan. Over the course of last year, borrowers continued to take advantage of near record low mortgage rates to lower their monthly payments, shorten their loan terms and overwhelmingly choose the safety of long-term fixed-rate mortgages. More than 95 percent of refinancing borrowers chose a fixed-rate loan. Fixed-rate loans were preferred regardless of what the original loan product had been.

See the complete 2014 Fourth Quarter & Full Year Refinance Report and interactive charts for all the details.

And unlike the fourth quarter of 2013 when rates were rising, mortgage rates dropped sharply at the end of 2014 breathing new life into the refinance market. At the same time, house prices continued to rise increasing by about 4.5 percent on a year-over-year basis in the fourth quarter. With housing markets getting closer to normal, we're starting to see stabilization in refinance activity. For the first time since 2009, the median appreciation of a refinanced property has turned positive, meaning that over half of all borrowers who refinanced saw their home equity increase since taking out their original loan. And for those who did refinance, the average interest rate reduction was about 1.3 percentage points. On a $200,000 loan, that translates into saving about $2,500 in interest during the next 12 months.

Compared to historical volumes, borrowers aren't cashing out home equity the way they used to. In the fourth quarter, an estimated $6.7 billion in net home equity was cashed out during a refinance of conventional prime-credit home mortgages, down from a revised $7.6 billion the previous quarter. For the full year, an estimated $24 billion in net home equity was cashed out, down from $28.6 billion in 2013. The peak in cash-out refinance volume was $84 billion during the second quarter of 2006, with an annual volume of $320.6 billion. Adjusted for inflation, annual cash-out volumes during 2010 through 2014 have been the smallest since 1997.

Mortgage rates have moved even lower at the start of this year, so we expect to see even more refinance activity for the first quarter of 2015.

 

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