More borrowers paying down principal when refinancing mortgages

July 29, 2010 10:00AM

Homeowners looking to refinance are increasingly putting down cash at
the closing table in order to lower their principal balance and take
out a new loan at a lower rate, according to data from Freddie Mac
released yesterday. During the second quarter, 22 percent of homeowners
who refinanced put down additional money to pay off some of their
principal for the third-highest “cash-in” share of refinancing
borrowers since Freddie Mac started tracking them in 1985. Borrowers
who increased their loan balance by 5 percent or more — or took
“cash-out”, as the practice is called — made up 27 percent of
refinance loans during the second quarter. The last three quarters have
seen the lowest “cash-out” shares since 1985, which the Freddie Mac
report attributed to low home prices and tightened underwriting
standards. “Interest rates on fixed-rate mortgages are at 50-year lows,
making refinancing attractive if borrowers qualify, and similarly rates
on savings instruments like CDs are also very low, which makes the
choice of paying down mortgage principal very attractive to borrowers
with extra cash reserves,” explained Frank Nothaft, vice president and
chief economist at Freddie Mac. TRD