Homeowners who refinanced their mortgage loans in the fourth quarter of 2012 reduced their interest rates by an average of 33 percent, a record savings not seen in 27 years of observance, according to Freddie Mac.

Fourth-quarter real estate refinances also came close to another record as 84 percent of refinancing homeowners either lowered or retained about the same loan principal by submitting additional funds at the loan closing.

This is just 1 percentage point lower than the record high of 85 percent recorded one year earlier in the fourth quarter of 2011.

“On average, borrowers who refinanced reduced their interest rate by about 1.8 percentage points,” said Frank Nothaft, VP and chief economist at Freddie Mac.

This translates to about $3,600 in annual savings on a $200,000 loan, according to Nothaft.

Among those who did take cash out during their refinances, the total cash-out value in the fourth quarter was $8.1 billion, down from $8.2 billion in the third quarter, another “low volume,” according to Freddie Mac.

Changing Price of Real Estate Image

Last quarter’s cash-out volume is well under the $84 billion cash-out peak in the second quarter of 2006.

HARP refinances generally included higher interest rate reductions. The average HARP refinance lowered a borrower’s interest rate by 2 percentage points, compared to 1.5 percentage points for non-HARP refinances.

HARP refinances also tended to occur on older loans than non-HARP refinances. The median age for the original home loan in a HARP refinance was 5.9 years, while the median age of the original loan in a non-HARP refinance was 3.7 years.

Borrowers receiving HARP refinances in the fourth quarter had experienced a median decline in property value of 29 percent. Non-HARP borrowers generally had not experienced much or any value depreciation.

Nothaft praised the federal refinance program, saying “While all borrowers that refinanced have benefited,HARP has enabled many borrowers that traditionally would not have had access to refinance to obtain low rates and significantly reduce their interest rate and monthly payment.”

“This increases the likelihood that these borrowers will continue to perform on their loan and remain homeowners,” Nothaft added.

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This is filed under National Markets.


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