An analysis shows homeowners continued to refinance their mortgages primarily for low rates, not cash.
According to Freddie Mac's third quarter Refinance Review, 32% of refinanced loans included cashout -- where the new loan amount resulted at least five percent higher than the amortized unpaid principal balance of the original amount. The historically low cashout share remained unchanged from the second quarter.
"Homeowners are increasingly becoming more financially savvy and sophisticated, following mortgage rates closely and taking advantage of rates that are at or near 45 year lows," said Freddie economist Amy Cutts in an announcement. "The ratio of old interest rates to new, refinanced interest rates this quarter was the largest drop in mortgage rates that we have seen since 1987."
The ratio stood at 1.29, which means that at least half of homeowners who paid off their original loan and took out a new one had a 29% higher interest rate on the original loan, according to the review.
At the same time, Freddie pointed out that the slight rise in mortgage rates during the third quarter decreased overall refinancings from their record highs earlier in the year. But, the rise was not enough to slow the pace of home loan sales, which the company predicts will set records at the year's end.
On an average loan size of $140,000, homeowners who refinanced during the third quarter lowered their loan rate on average 1.3%, saving $119 or more on a monthly payment, said Freddie.
The review also revealed homeowners have taken out an additional $95 billion year-to-date by refinancing. Much of this money goes to further consumer spending, said Cutts.
Refinanced properties appreciated 3% in value by the time the refinance loan was made, according to the review. The median appreciation of refinanced properties was the same in the prior quarter and down from 13% the third quarter last year.
All estimates come from a sample of properties on which Freddie has funded at least two successive loans. The analysis involves additional screening to ensure that that the latest loan transaction is a refinance, not a sale. The use of funds made available through the refinances is not tracked.