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Borrowers Who Refinanced in Third Quarter Cut Their Mortgage Payments by $3 Billion Over First 12 Months

Cash-out Refinancing Falls to Lowest Share in Six Years

For Immediate Release

November 02, 2009
Contact: corprel@freddiemac.com
or (703) 903-3933


McLean, VA – In the third quarter of 2009, one-half of borrowers who refinanced their conventional loan lowered their annual mortgage interest rate by at least 17 percent according to Freddie Mac’s quarterly Refinance Report. The new interest rate was about 1.1 percentage points below the old rate. In aggregate the interest-rate reduction adds up to about $3 billion in payment savings for these homeowners over the first 12 months of the new loan.

“Homeowners are benefiting from an extended period of very low interest rates. In the first nine months of 2009, interest rates on 30-year fixed-rate mortgages have averaged 5.1, the lowest such average in the 38-year history of Freddie Mac’s Primary Mortgage Market Survey®,” noted Frank Nothaft, Freddie Mac vice president and chief economist. “At the beginning of the year, only borrowers who still had a solid equity cushion could take advantage of the low mortgage rates, but through the Homeownership Affordability Refinance Program that got underway in April, borrowers who have a loan owned by Freddie Mac or Fannie Mae can refinance that loan even if they have no home equity. As of August 31st, over 93,000 borrowers had taken advantage of this opportunity according to the Federal Housing Finance Agency, with the bulk of those occurring in July and August.”

Freddie Mac’s Refinance Report also indicates that 64 percent of prime borrowers who refinanced a conventional, first-lien mortgage either kept about the same principal balance or reduced it, the highest such share in six years. The share of refinance loans resulting in new loan amounts that were at least 5 percent higher than the paid-off first-lien mortgage balance, a measure of “cash-out” refinancing, fell to a six-year low of 36 percent in the third quarter.

"In the third quarter, about $20 billion in home equity was cashed out by homeowners when they refinanced their conventional prime-credit home mortgage. Over the first three quarters of this year, the aggregate amount cashed out has been approximately $60 billion. Adjusting for inflation, this was the smallest volume of equity extraction over the first three quarters of a year since 2000,” said Amy Crews Cutts, Freddie Mac deputy chief economist. “The principle cause of the decline in cash-out refinance is that homeowners have a smaller equity cushion. The median property refinanced in the third quarter had no net appreciation over the time since the previous mortgage was taken out, which was three and a half years ago.”

These estimates come from a sample of properties on which Freddie Mac has funded at least two successive loans. Transactions are further screened to verify that the latest loan is for refinance rather than for home purchase. The Freddie Mac analysis does not track the use of funds made available from these refinances.

Quarterly Refinance Statistics
Percentage of Refinances Resulting in: Descriptive Statistics on Loan Terms and Property Valuation
Quarter 5% Higher Loan Amount1 Lower Loan Amount Median Ratio of New to Old Rate2 Median Age of Refinanced Loan (years) Median Appreciation of Refinanced Property
200101 53% 8% 0.87 1.6 12%
200102 60% 9% 0.87 2.5 16%
200103 61% 10% 0.88 2.7 18%
200104 47% 19% 0.84 2.8 14%
200201 61% 10% 0.86 3.4 18%
200202 63% 10% 0.88 3.4 20%
200203 44% 19% 0.84 2.9 13%
200204 40% 22% 0.82 2.4 11%
200301 41% 13% 0.81 1.9 7%
200302 33% 15% 0.79 1.7 3%
200303 34% 17% 0.78 1.7 5%
200304 44% 21% 0.82 2.2 12%
200401 42% 13% 0.82 2.0 6%
200402 43% 14% 0.83 2.0 8%
200403 60% 15% 0.88 2.5 17%
200404 57% 19% 0.88 2.2 16%
200501 64% 10% 0.89 2.4 18%
200502 72% 9% 0.92 2.5 23%
200503 73% 10% 0.93 2.6 24%
200504 81% 8% 0.98 2.9 29%
200601 86% 5% 1.02 3.0 31%
200602 88% 4% 1.08 3.2 34%
200603 88% 5% 1.10 3.3 33%
200604 82% 7% 1.04 3.3 28%
200701 83% 5% 1.02 3.4 25%
200702 84% 5% 1.02 3.5 24%
200703 86% 5% 1.10 3.9 26%
200704 77% 8% 1.02 3.6 19%
200801 58% 9% 0.91 2.4 8%
200802 67% 9% 0.94 3.3 13%
200803 76% 9% 1.04 4.4 16%
200804 55% 17% 0.92 3.0 7%
200901 43% 13% 0.81 3.1 3%
200902 37% 16% 0.80 3.5 1%
200903 36% 17% 0.83 3.5 0%


Notes:
1Higher loan amount refers to loan amounts that were at least 5 percent greater than the amortized unpaid principal balance (UPB) of the original loan. "Lower loan amount" refers to loan amounts that were less than the amortized UPB of the original loan.

2Ratio of new to old rate refers to the ratio of the interest rate of the new loan to the interest rate of the refinanced loan. Refinanced loans with adjustable-rate products are excluded.

Quarterly Cash-Out Volume for All Prime Conventional Loans
Year 1. Total Cash-Out Dollars as a Percentage of Aggregate Refinanced Originations UPB 2. Total Home Equity Cashed Out ($ billions) 3. Volume of 2nd mortgage and HELOC consolidation ($billions) 4. Total Combined Volume of Cash-out and 2nd Mortgages/HELOC Consolidation ($ billions)
200001 10.6% $5.6 $9.1 $14.6
200002 11.8% $6.3 $8.7 $15.0
200003 12.5% $6.6 $8.0 $14.7
200004 11.0% $7.7 $8.4 $16.1
200101 7.8% $12.5 $10.1 $22.6
200102 9.6% $23.0 $15.5 $38.5
200103 10.0% $20.7 $12.7 $33.4
200104 7.2% $26.7 $14.3 $41.0
200201 9.5% $28.7 $18.7 $47.4
200202 10.8% $23.0 $13.0 $36.0
200203 6.7% $25.5 $12.3 $37.9
200204 5.9% $33.9 $15.4 $49.4
200301 6.6% $35.2 $22.5 $57.7
200302 5.9% $38.6 $20.7 $59.3
200303 6.6% $43.5 $21.8 $65.2
200304 10.5% $30.1 $12.5 $42.6
200401 8.8% $26.3 $9.9 $36.2
200402 9.8% $35.8 $12.3 $48.1
200403 16.8% $38.3 $9.1 $47.3
200404 15.1% $43.1 $12.1 $55.3
200501 17.4% $48.1 $9.2 $57.3
200502 20.7% $61.4 $9.7 $71.0
200503 20.6% $73.8 $11.2 $85.1
200504 25.3% $79.1 $8.7 $87.8
200601 28.7% $74.4 $6.0 $80.5
200602 31.0% $83.6 $5.9 $89.5
200603 30.5% $80.7 $6.7 $87.5
200604 25.9% $79.5 $9.6 $89.0
200701 25.8% $74.1 $7.5 $81.6
200702 26.4% $72.5 $7.2 $79.7
200703 28.1% $52.2 $5.2 $57.4
200704 23.0% $40.4 $6.4 $46.8
200801 (E) 14.8% $29.5 $6.7 $36.2
200802 (E) 18.3% $38.7 $7.3 $46.0
200803 (E) 23.3% $25.1 $4.1 $29.2
200804 (E) 14.1% $14.9 $4.7 $19.6
200901 (E) 8.5% $20.6 $8.4 $28.9
200902 (E) 8.0% $22.8 $9.6 $32.4
200903 (E) 8.4% $19.6 $8.2 $27.8


Column 1. Indicates the share of newly refinanced mortgage debt balances that are due to equity-extraction through a cash-out refinance. It is the ratio of the value in Column 2 divided by our estimate of the refi dollar volume of prime first-lien mortgage originations.

Column 2. Indicates the dollar volume of equity cashed-out through the refinancing of prime, first-lien conventional mortgages. It is calculated using Freddie Mac's estimate of prime, conventional mortgage originations volume, the refi share of originations, and the values in Column 1 of this sheet. We do not estimate how much equity is taken out through the refinance of FHA or VA loans or through refinance loans originated in the subprime market

Column 3. Indicates the total increase in the principal balances of refinanced first-lien mortgages, inclusive of cash-out amounts, the consolidation of existing second mortgages or Home-Equity lines of credit into the first lien, and loan origination costs that are rolled into the principal balances. It is calculated using Freddie Mac's estimate of prime, conventional mortgage originations volume, the refi share of originations, and of the average increase in the principal balance from refinanced loans.

Column 4. Indicates the total increase in the principal balances of refinanced first-lien mortgages, inclusive of cash-out amounts, the consolidation of existing second mortgages or Home-Equity lines of credit into the first lien, and loan origination costs that are rolled into the principal balances. It is calculated using Freddie Mac's estimate of prime, conventional mortgage originations volume, the refi share of originations, and of the average increase in the principal balance from refinanced loans.

(E). Indicates the value is an estimate and is subject to revision. The primary sources of any revisions are adjustments to Freddie Mac's estimate of total refinance mortgage originations in the prime, conventional mortgage market.

These data can be found at www.FreddieMac.com/finance/refi_archives.html. For more information, contact us at chief_economist@freddiemac.com.

Although Freddie Mac attempts to provide reliable, useful information in this document, Freddie Mac does not guarantee that the information is accurate, current or suitable for any particular purpose. The information is therefore provided on an "as is" basis, with no warranties of any kind whatsoever. Opinions and estimates contained in this document are those of Freddie Mac currently and are subject to change without notice. Information from this document may be used with proper attribution. Alteration of this document is strictly prohibited. ˆ 2010 by Freddie Mac.

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.

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