Borrowers Who Refinanced In First Quarter Will Lower Their Interest Expense An Aggregate $2 Billion Over The Coming Year
Median Borrower Reduced Interest Rate by 16 Percent
April 28,
2010
Contact:
corprel@freddiemac.com
or (703) 903-3933
McLean, VA – In the first quarter of 2010, one-half of borrowers who refinanced their conventional loan lowered their mortgage interest rate by at least 16 percent according to Freddie Mac’s quarterly Refinance Report. The new interest rate was 0.9 percentage points or more below the old rate for one-half of borrowers.
“Rates on 30-year fixed-rate mortgages during the first quarter remained low, averaging 5.0 percent in Freddie Mac’s Primary Mortgage Market Survey®,” noted Frank Nothaft, Freddie Mac vice president and chief economist. “The median interest-rate savings for borrowers who refinanced their conventional loan in the first quarter was 0.9 percentage points. Refinances were about three-fourths of originations during the first quarter. In total, the lower rate translates into about $2 billion in interest savings for these borrowers over the first 12 months of the new loan.”
Further, 72 percent of borrowers who refinanced kept their loan balance largely unchanged or reduced their loan balance outstanding as a result of the refinance. This latter group, who placed “cash-in” to their home as part of the refinance, represented 18 percent of all borrowers who refinanced during the first quarter. “Cash-out” borrowers, those that increased their loan balance by at least 5 percent, represented 28 percent of all refinance loans; the cash-out shares recorded over the last two quarters were the lowest since the analysis began in 1985.
In the first quarter, about $9 billion in home equity was cashed out by homeowners when they refinanced their conventional prime-credit home mortgage, the smallest quarterly inflation-adjusted amount in ten years, since the third quarter of 2000. The main causes of the decline in cash-out refinance were reduced home prices and tighter underwriting standards for loan-to-value ratios. Among the refinanced loans in Freddie Mac’s analysis, the median appreciation of the collateral property was a negative 4 percent over the median prior loan life of 4.0 years.
These estimates come from a sample of properties on which Freddie Mac has funded two successive loans, and the latest loan is for refinance rather than for purchase. The 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 |
| 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
|
4%
|
| 200303 |
34%
|
17%
|
0.78
|
1.7
|
5%
|
| 200304 |
44%
|
21%
|
0.82
|
2.2
|
12%
|
| 200401 |
42%
|
14%
|
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%
|
1.09
|
3.9
|
26%
|
| 200704 |
77%
|
9%
|
1.02
|
3.6
|
19%
|
| 200801 |
58%
|
9%
|
0.90
|
2.4
|
8%
|
| 200802 |
67%
|
9%
|
0.94
|
3.3
|
13%
|
| 200803 |
76%
|
9%
|
1.04
|
4.4
|
16%
|
| 200804 |
55%
|
17%
|
0.92
|
3.1
|
7%
|
| 200901 |
43%
|
13%
|
0.81
|
3.1
|
3%
|
| 200902 |
37%
|
16%
|
0.80
|
3.5
|
1%
|
| 200903 |
35%
|
18%
|
0.83
|
3.5
|
0%
|
| 200904 |
24%
|
36%
|
0.84
|
3.6
|
-2%
|
| 201001 |
28%
|
18%
|
0.84
|
4.0
|
-4%
|
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. Total Volume of 2nd Mortgages/HELOC Consolidation ($ billions) | 4. Total Combined Volume of Cash-out and 2nd Mortgages/HELOC Consolidation ($ billions) |
| 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
|
$22.6
|
$57.8
|
| 200302 |
5.9%
|
$38.5
|
$20.9
|
$59.4
|
| 200303 |
6.6%
|
$43.3
|
$22.0
|
$65.3
|
| 200304 |
10.4%
|
$29.8
|
$12.9
|
$42.7
|
| 200401 |
8.7%
|
$26.1
|
$10.1
|
$36.2
|
| 200402 |
9.7%
|
$35.6
|
$12.5
|
$48.1
|
| 200403 |
16.7%
|
$38.1
|
$9.3
|
$47.4
|
| 200404 |
15.1%
|
$43.1
|
$12.2
|
$55.3
|
| 200501 |
17.4%
|
$48.1
|
$9.2
|
$57.3
|
| 200502 |
20.7%
|
$61.5
|
$9.6
|
$71.1
|
| 200503 |
20.6%
|
$73.9
|
$11.2
|
$85.1
|
| 200504 |
25.3%
|
$79.2
|
$8.7
|
$87.8
|
| 200601 |
28.7%
|
$74.5
|
$6.1
|
$80.5
|
| 200602 |
31.0%
|
$83.6
|
$5.9
|
$89.5
|
| 200603 |
30.5%
|
$80.7
|
$6.8
|
$87.5
|
| 200604 |
25.9%
|
$79.5
|
$9.6
|
$89.1
|
| 200701 |
25.7%
|
$73.8
|
$7.8
|
$81.7
|
| 200702 |
26.2%
|
$71.9
|
$7.9
|
$79.8
|
| 200703 |
27.8%
|
$51.6
|
$5.9
|
$57.4
|
| 200704 |
22.7%
|
$39.8
|
$7.0
|
$46.8
|
| 200801 |
14.6%
|
$33.1
|
$8.0
|
$41.1
|
| 200802 |
18.0%
|
$31.1
|
$6.5
|
$37.6
|
| 200803 |
23.1%
|
$18.3
|
$3.2
|
$21.6
|
| 200804 |
14.0%
|
$11.9
|
$4.0
|
$15.9
|
| 200901 (E) |
8.5%
|
$19.6
|
$8.0
|
$27.6
|
| 200902 (E) |
8.0%
|
$21.9
|
$9.2
|
$31.2
|
| 200903 (E) |
8.3%
|
$17.2
|
$7.5
|
$24.7
|
| 200904 (E) |
5.7%
|
$12.1
|
$9.8
|
$21.9
|
| 201001 (E) |
5.6%
|
$8.8
|
$5.0
|
$13.9
|
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 due to 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 that were not due to new equity extraction.
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/news/finance/refi_archives.htm. 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. © 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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