The number of borrowers who refinanced to cash out home equity remained steady during the first quarter, according to Freddie Mac’s quarterly refinance review.
In the first quarter of 2004, 43 percent of Freddie-Mac owned loans that were refinanced resulted in new mortgages at least 5 percent higher in amount than the original mortgages. In the fourth quarter of 2003, 44 percent of refinanced loans had higher new loan amounts.
During the second quarter of 2003, when fixed-rate mortgages were still falling, 33 percent of refinanced loans were for cash out and the number of loans being refinanced was considerably higher.
“Mortgage rates remained low throughout the first quarter of this year but were higher than we saw last summer,” said Frank Nothaft, Freddie Mac chief economist. “With mortgage rates above the 46-year low of last June, the refinance volume is less than last summer’s. The share of cash-out refis tends to rise when overall refinancing activity slows down because fewer borrowers find it economical to refinance their mortgages simply for a lower rate, but the cash-out alternative may be a very affordable option.”
Freddie Mac expects growth in real gross domestic product to be about 4.7 percent, and for the core inflation rate, excluding food and energy components, to remain low. It also expects slightly higher mortgage rates in the second quarter to reduce refinance activity, but that the housing market overall should have a strong year with 30-year, fixed mortgage rates hovering near 6 percent.
“Over the first quarter of 2004, homeowners who refinanced their mortgages lowered their rate on average 1 percentage point,” Nothaft said. “On an average loan size of $150,000, that lower rate translates into a payment that is about $100.00 a month lower for a savings of more than $1,200 annually.”
The review also revealed that properties refinanced during the first quarter experienced a median house-price appreciation of 6 percent during the time since the original loan was made, slightly slower than the 7 percent appreciation rate for loans refinanced in the first quarter of 2003.
Freddie Mac is a stockholder-owned corporation that purchases mortgages from lenders and packages them into securities that are sold to investors.