Industry News

Cash-out refinancing expected to drop as interest rates rise

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The percentage of borrowers who took cash out when refinancing loans with Freddie Mac dropped slightly in the fourth quarter, as did the dollar volume of cash-out refinances. Cash-out refinance volume is expected to continue on a downward trend in 2007, due to an expected drop in the share of refinance loans and overall origination activity, said Amy Crews Cutts, Freddie Mac deputy chief economist. Some 84 percent of borrowers who refinanced ended up with mortgages that were at least 5 percent higher than their original balances, Freddie Mac said, down from 87 percent in the third quarter. Cash-out refinances totaled $70.7 billion, down from $80.2 billion in the previous quarter. In the fourth quarter of 2006, the median ratio of new-to-old interest rate was 1.06, meaning that half of borrowers who refinanced increased their mortgage coupon rate by 6 percent. "With interest rates averaging 6.2 percent in the fourth quarter for 30-year fixed-rate mortgages, many families found i...