While refinances represented a smaller portion of quarterly originations -- with half done at a 2 percent higher rate, the share that was cashout reached its highest level in 15 years.
In the first quarter, 88 percent of refinance loans owned by Freddie Mac had cashout of at least 5 percent of the original mortgage, the secondary lender announced. The share, which is the highest since the third quarter of 1990, is up from the fourth quarter's revised level of 81 percent and from 64 percent in the comparable period a year ago.
As rates on all mortgages rose between 0.02 percent and 0.25 percent, the overall share of refinance loans edged down during the first quarter to 44 percent. Freddie added that it expects the refinance share to fall to about one-third for the year.
"Almost no one is refinancing to reduce their interest rate in today's environment," Freddie Chief Economist Frank Nothaft said in a written statement. "In fact, the first quarter of 2006 is the first time in 20 quarters in which the new mortgage rate was higher than the old one for more than half of refinancing borrowers."
The median ratio of old-to-new interest rate was 0.98, meaning half of borrowers who refinanced got a rate that was at least 2 percent higher than the rate on their original loan.
One reason borrowers may be willing to increase the rates on their first mortgages is because the prime rate home equity loans are typically linked to is presently higher than rates on mortgage loans, Nothaft said.
Properties refinanced during the first quarter experienced a median house-price appreciation of 30 percent during the time since the original loan was made, rising from 29 percent in the fourth quarter and 17 percent a year ago, Freddie said.
The median age between when the original loan was made and the refinance was reportedly three years, about a month older than in the prior quarter.
Freddie said its estimates come from a sample of properties on which it has funded at least two successive loans.