Home owners who refinanced in the fourth quarter of 2012 were able to trim the interest rate on their real estate properties by about 1.8 percentage points on average. That amounted to an average savings of about 33 percent on the interest rate — which Freddie Mac reports is the largest percentage reduction it’s ever recorded.

“On a $200,000 loan, that translates into saving about $3,600 in interest during the next 12 months,” says Frank Nothaft, Freddie Mac’s chief economist.

In December, fixed mortgage rates had reached new lows, with 30-year products averaging 3.4 percent and 15-year averaging 2.7 percent that month.


Thirty-nine percent of home owners who refinanced were able to reduce their principal balance by paying additional money at the closing table, Freddie Mac reports. Borrowers who were able to refinance using the Home Affordable Refinance Program (HARP) had an average interest rate reduction of 2 percentage points.

“While all borrowers who refinance 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,” Nothaft says. “This increases the likelihood that these borrowers will continue to perform on their loan and remain home owners.”

Will Mortgage Rates Go Up Again Soon?

Mortgage interest rates are expected to rise this year, and the increase will likely curb refinancings and affect move-up homebuyers.

The Mortgage Bankers Association projects the 30-year fixed rate to increase to an average of 4.1 percent in 2013 and 4.5 percent in 2014, up from 3.7 percent last quarter. The group’s December forecast has the dollar value of refis dropping to $818 billion this year and $350 billion next year, from approximately $1.2 trillion in 2012.

Neither higher interest rates nor fewer refis are expected to have a significant impact on housing starts or home sales, however. “Interest rates are so low right now that a modest increase wouldn’t have much effect on sales,” according to Walter Molony of the National Association of REALTORS®.

What would be a game changer, he adds, is a loosening of credit standards — especially considering that so many borrowers still cannot qualify for financing. “A return to normal standards would boost sales 10 percent to 15 percent,” Molony estimates.

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