Cash Out Refinance Share Hits New Low

October 27, 2010 No Comments »


The share of those refinancing who pulled cash out hit a new low in the third quarter, according to mortgage financier Freddie Mac.

Just 18 percent of refinance loans were considered cash-out refinances, defined as mortgages where the loan balance increases by at least five percent.

That’s down from 25 percent a quarter earlier and 36 percent in the third quarter of 2009.

The decline in cash-out refinancing was the result of reduced home prices, tighter underwriting standards for loan-to-value ratios, a lack of home equity, and borrowers’ desire to actually pay down their debt.

“Among the refinanced loans in Freddie Mac’s analysis, the median appreciation of the collateral property was a negative 3 percent over the median prior loan life of 3.8 years,” the company said in a release.

Cash-In Refinances Jump

Meanwhile, “cash-in refinance” volume increased to 33 percent from 23 percent a quarter earlier and 18 percent a year ago.

That’s the highest it has been since hitting a record high 36 percent in the fourth quarter of 2009.

The median mortgage rate reduction was about one percentage point, or at least an 18 percent reduction in the mortgage payment.

Over the first year of the new refinance loan, borrowers will save over $1,400 in principal and interest payments on a $200,000 loan.

Related: Can I refinance with negative equity?

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