Mortgage Refinancing: Borrowers See Big Payoff in 3rd Quarter

Many consumers may have sought to refinance their existing home loans in the last several years as a means of making their monthly payments more affordable, and it seems their efforts have largely paid off.

During the third quarter, 83 percent of consumers who took the time to refinance their home loans either maintained the same loan amount or were able to slash their principals by paying more money into the balance, the report said. In all, about 29 percent of all borrowers were able to cut their obligations with larger payments, while the other 54 percent kept theirs the same. The 83 percent total was the highest seen in some time, and only slightly below the all-time record of 85 percent in the final quarter of 2011.

“On average, borrowers who refinanced reduced their interest rate by about 1.7 percentage points,” said Frank Nothaft, vice president and chief economist for Freddie Mac. “On a $200,000 loan, that translates into saving about $3,500 in interest during the next 12 months. Fixed-rate mortgage rates hit new lows during September, with 30-year product averaging 3.5 percent and 15-year averaging 2.8 percent that month, according to our Primary Mortgage Market Survey.”

That 1.7-point drop in rates is equal to a decline of about 31 percent, and marks the largest decline seen in the 27 years Freddie Mac has been conducting such analysis, the report said. Freddie also found that of all the mortgage applications submitted to lenders in the third quarter, 82 percent were for refinances. That matched the all-time high, observed in the fourth quarter of 2010.

Meanwhile, for loans with terms altered through the Home Affordable Refinance Program, the value of those properties declined 31 percent from when the mortgage was originated, the report said. On average, those loans came with a median age of 5.6 years, and borrowers received rate reductions averaging about two percentage points.

Consumers who seek to refinance their home loans can save hundreds or even thousands of dollars per month on their payments because rates are hovering near all-time lows, and have been for some time now. Many may further be encouraged to do so thanks to slowly rising property values, which brought many underwater borrowers back to the right side of their obligations in the last several months.