Refinancers Largely Favor Fixed Rate Loans; Cash-Out Share Stays Low

Homeowners who refinance continue to overwhelmingly opt for fixed-rate mortgages, and by historical standards, fewer homeowners are using refinances as a means of putting more cash in their pockets, according to ""Freddie Mac's 2013 Second Quarter Refinance Report."":http://www.freddiemac.com/news/finance/pdf/RefiReport2013Q2.pdf

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More than 95 percent of homeowners who refinanced their mortgage loans in the second quarter of this year chose fixed-rate loans.

Fixed-rate loans were favored both among those who previously held fixed-rate loans and among those whose mortgages were adjustable-rate mortgages (ARMs), according to Freddie Mac.

The GSE found that among refinances in the second quarter, 79 percent of homeowners with ARMs switched to fixed-rate loans. On the other hand, just 2 percent of homeowners with fixed-rate loans opted for an ARM in their refinance.

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At the same time, ""[t]he cash-out amount, while increasing, continues to remain low by historical standards,"" according to Frank Nothaft, VP and chief economist at Freddie Mac. The total cash-out volume for the second quarter was $9.5 billion, down from a peak of $84 billion in the second quarter of 2006.

The majority--85 percent--of refinancers in the second quarter either kept or lowered their loan principal when they refinanced during the second quarter.

The percentage of refinancers who made extra payments prior to refinancing is on the rise, up from between 3 and 9 percent prior to the recession to between 11 and 19 percent today, according to Freddie Mac.

Only 4 percent of refinances came with lengthened loan terms in the second quarter. Sixty-five percent of homeowners kept the same loan term, and 31 percent decreased their loan term with their refinance.

On average, a homeowner who refinanced in the second quarter lowered his or her interest rate by 1.9 percent.

Homeowners who received refinances through the government's Home Affordable Refinance Program will save an average of $385 per month.

""On net, borrowers will save approximately $6 billion in interest over the next 12 months, which they can put towards savings, paying down debt or supporting additional expenditures,"" Nothaft said.