According to Freddie Mac's quarterly Refinance Report, at least 50% of borrowers were able to reduce their interest rate by at least 1.25% after refinancing in the second quarter of 2009. For a rate and term refinance, this translates into a monthly payment savings of about $80 for every $100,000. In total, this significant interest rate reduction is expected to help borrowers save an estimated total of $3.4 billion over the next year. Additionally, Freddie Mac also points out that these borrowers will have accumulated an additional $200 million towards paying down their principal after one year.
Homeowners Taking Less Cash Out from Equity when Refinancing
The Refinancing Report also indicated that fewer homeowners were taking cash out of their home's available equity. In their survey of prime borrowers who refinanced a conventional second lien mortgage, only 38% increased their loan balance by 5% or more; compared to 43% of homeowners in the first quarter of 2009. One Freddie Mac economist comments that cash -out volumes are 35% lower than last year's numbers because "credit standards are quite strict today for cash-out refinances". And in the last few years, even the best mortgage lenders have tightened down on credit requirements and loan to value ratio guidelines.
Best Mortgage Rates Higher than a Few Months Ago, But Still OK
Mortgage rates hit an all time low during the second quarter of 2009 as prime borrowers saw mid 4% rates for traditional 30 year fixed rate home loans. But if interest rates can hold steady at their current levels of about 5.25%, Freddie Mac still expects mortgage refinances to account for more than 50% of all total loan originations.
