Freddie Mac Refinancing Analysis
Freddie Mac has recently released a study of its fourth-quarter 2014 quarterly refinance analysis, displaying that borrowers are still taking advantage of the record low mortgage rates to help lower their monthly payments when refinancing. The analysis also says that borrowers are working to shorten their loan terms and are choosing to go with a long-term fixed-rate mortgage since they provide a higher level of safety. Over the next 12 months, borrowers who refinanced in 2014 are expected to save around $5 billion in interest.
According to Freddie Mac’s deputy chief economist, Len Kiefer, because mortgage rates fell in the last quarter of 2014, the share of refinancing originations went up slightly, despite their volumes being down. This trend is expected to continue into the first quarter of 2015 as the mortgage rates will continue to drop. The lower mortgage rates combined with greater house price appreciation in 2014 brought larger shares of borrowers, cashing out on home equity at the time of refinance.
Compared to historical volumes, the net dollars of home equity that were converted to cash as a part of refinance remained low. In the fourth quarter of 2014, an estimated $6.7 billion in net home equity was cashed out during a refinance of conventional prime credit home mortgages, which is down from the revised $7.6 billion in the previous quarter.
Of the borrowers who refinanced during the last quarter of 2014, 34 percent shortened the life of their loan, which is down from the 35 percent who made the same move in the previous quarter. Even more, 35 percent of homeowners who refinanced outside of HARP took out a shorter-term loan, while 33 percent of HARP borrowers simply shortened their term.
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