During the first quarter, only 25 percent of those who refinanced took cash out, according to the latest quarterly survey from mortgage financier Freddie Mac.
The company noted that the average cash-out refinance share over the past 25 years was a staggering 62 percent.
Clearly times have changed.
Nowadays, most homeowners are happy just to get the chance to do a rate and term refinance to a lower mortgage rate, and thus a lower mortgage payment, thanks to tighter underwriting guidelines and issues like negative equity.
In fact, 75 percent of homeowners who refinanced their first mortgages either kept roughly the same loan amount or lowered their principal balance by paying-in additional money at the closing table (cash-in refinance).
Broken down, 54 percent maintained the same loan amount, the highest share since 1985, when Freddie began keeping records on such trends, while 21 percent of refinancing homeowners reduced their principal balance.
Average Refinance Lowered Mortgage Rate by 1.2%
The median interest rate reduction on the popular 30-year fixed-rate mortgage was about 1.2 percentage points, or a savings of roughly 20 percent in interest costs. That’s pretty huge.
It certainly exceeds what most people would refer to as the refinance rule of thumb, whereby you need to lower your existing interest rate by at least one percent.
Over the first year of the refinance loan, such borrowers will save more than $1,800 in interest payments on a $200,000 loan. That’s roughly $150 per month.
Wondering why fewer borrowers cashed-out?
Well, the median home price appreciation of the collateral property was a negative six percent over the median prior loan life of five years.
And that’s actually pretty good compared to the Freddie Mac House Price Index, which showed a 21 percent decline in its U.S. series between the end of 2005 and end of 2010.
In other words, most folks don’t have much equity to tap, and with lenders skittish, a lower rate alone is a win.