The lastest refinance report shows the refinance boom continued to wind down as the pool of potential borrowers declined over the course of 2014. However, due to mortgage rates falling in the 4th quarter of last year, the share of refinance originations slightly increased despite volumes being down. Since mortgage rates have moved even lower, this trend is also expected in the 1st quarter of 2015. Lower mortgage rates, coupled with greater house prices appreciation last year, also brought about a larger share of borrowers cashing out home equity at the time of refinance. However, while the total percentage was up, the total dollar amount declined by nearly $1 Billion from the 3rd quarter of 2014, and nearly $4.6 Billion from the 4th quarter of 2013.
Compared to historical volumes, the net dollars of home equity converted to cash as part of a refinance remained low. An estimated $6.7 Billion in net home equity was cashed out during a refinance of conventional prime-credit home mortgages in the 4th quarter. this is down from a revised $7.6 Billion the previous quarter. For the entire year, an estimated $24 Billion in net home equity was cashed out, down from $28.6 Billion in 2013. The peark in cash-out refinance volume was in the 2nd quarter of 2006 at $84 Billion, with an annual volume of $320.6 Billion. Adjusted for inflation, annual cash-out volumes during 2010 through 2014 have been the smallest since 1997.
Change in Loan Term
During the 4th quarter of 2014, 34% of those refinancing borrowers shortened their loan term. This is down from the 35% from the previous quarter. Further, 35% of those who refinanced outside of HARP took out a shorter-term loan, while 33% of HARP borrowers shortened their term. Of the rest of the borrowers, 60% kept the same term as the loan they had paid off and only 6% chose to lengthen their loan term.
Interest Rate Reduction
The average interest rate reduction was about 1.3 percentage points in the 4th quarter. That is a savings of about 23%. On a $200,000 loan, that translates into saving about $2,500 in interest during the first 12 months. Homeowners who refinanced through HARP during the 4th quarter of 2014 benefited from an average reduction of 1.6 percentage points and will save an average of $3,300 in interest during the first 12 months or about $275 every month. About 71% of those who refinanced their first-lien home mortgage maintained about the same loan amount or lowered their principal balance by paying in additional money at the closing table. That is shy of the 88% peak during the 2nd quarter of 2012.
More than 95% of refinancing borrowers chose a fixed-rate loan. Regardless of what the original loan product was, fixed-rate loans were preferred. For example, 67% of borrowers who had a hybrid ARM refinanced into a fixed-rate loan during the 4th quarter. Only 4% of borrowers who had a fixed-rate loan chose an ARM. For all other (non-HARP) refinances during the 4th quarter, the median property value was up 5% between the dates of placement of the old loan and the new refinance loan. The prior loan had a median age of 5.8 years and 35% of borrowers shortened their loan term.
Interest rates currently remain near historic lows. If you are interseted in refinancing your home at the Lake of the Ozarks, give me a call at 573-746-7211. When it comes to your financing needs, I'm committed to working with you every step of the way. I'll discuss financing options, offer competitive interest rates and back it up with the first class service you deserve!
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Sr. Residential Mortgage Lender
NMLS #: 493712
2265 Bagnell Dam Blvd, Suite B
PO Box 1449
Lake Ozark, MO 65049