Borrowers who refinanced during the fourth quarter did so primarily to cash out home equity rather than to secure lower interest rates, according to Freddie Mac’s quarterly refinance review.

In the fourth quarter of 2003, 45 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages at least 5 percent higher in amount than the original mortgages. This is in contrast to the third quarter of 2003, when an upwardly adjusted 34 percent of refinanced loans had higher new loan amounts. A year ago, when fixed-rate mortgages were still falling, 40 percent of refinanced loans were for cash out, but the number of loans being refinanced was considerably higher.

“The atmosphere around refinancing changed in the fourth quarter as mortgage rates started rising from the 45-year lows of the summer. Since most of those who could refinance for lower rates have already done so, the later-year market became more attractive primarily to those who want or need to take equity out of their homes,” said Amy Crews Cutts, Freddie Mac deputy chief economist. “Additionally, as mortgage rates began creeping upwards, the rate of refinancing began to drop off from the record highs that we experienced earlier in the year.”

Freddie Mac expects real gross domestic product growth to be about 4.5 percent, and economic expansion at that rate should be enough to gradually draw down the unemployment rate to about 5.5 percent during the last quarter of 2004. With both inflation and mortgage rates expected to remain low in 2004, we continue to see a strong housing market for the year ahead.

“Over the fourth quarter of 2003, homeowners who refinanced their mortgages lowered their rate on average 1 percentage point,” Cutts said. “On an average loan size of $150,000, that lower rate translates into a payment that is about $100 a month lower for a savings of more than $1,200 annually.”

The review also revealed that properties refinanced during the fourth quarter 2003 experienced a median house-price appreciation of 12 percent during the time since the original loan was made, similar to the 11 percent appreciation for loans refinanced in fourth quarter 2002.

Freddie Mac is a stockholder-owned corporation that purchases mortgages from lenders and packages them into securities that are sold to investors.


Send a Letter to the Editor for publication.
Send a comment or news tip to our newsroom.
Please include the headline of the story.

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription