An analysis by Freddie Mac shows fewer homeowners that are refinancing are doing so primarily for lower mortgage rates.
Freddie's fourth quarter Refinance Review revealed that 45% of the company-owned refinance loans included cashout -- where the new loan amount was at least 5% over the amortized unpaid principal balance of the original amount. The previous quarter's revised share was 34%, while a year ago, when rates were falling and refinancings were greater in number, it was 40%.
Freddie said the estimates were derived from a sample of properties on which it has funded at least two consecutive loans. The analysis does not track the use of funds obtained through the refinances.
"Since most of those who could refinance for lower rates have already done so, the later-year market became more attractive primarily to those who want or need to take equity out of their homes," said Freddie's deputy chief economist Amy Cutts, in the announcement.
"With interest rate still averaging well below 6 percent, homeowners are using cash out refinancing as an affordable way to finance purchases of durable goods, home improvements and to pay down other forms of consumer debt," Cutts added.
In all of 2003, homeowners took out almost $139 billion from their home equity, "but rising home values put that equity right back in and then some," said the economist. Total value of homeowner equity reached a record $7.9 trillion by the third quarter, contributing to the 40% national average growth in home values over the past 5 years.
Refinanced properties appreciated 12% in value by the time the refinance loan was made -- up from 5% in the third quarter and close to the 11% in the fourth quarter 2002, according to the review.