Monday, May 11, 2009

REFINANCING AT TODAY’S LOW RATES SAVES THOUSANDS OF DOLLARS

With home-loan interest rates plummeting to the lowest levels in 50 years, a multi-billion-dollar mortgage refinancing boom is underway in Chicago and across the nation.

American homeowners who refinanced existing mortgages during the first quarter of 2009 reduced their mortgage payments by about $2.5 billion over the coming year, according to Freddie Mac’s quarterly Refinance Report.

“Mortgage rates for 30-year fixed-rate loans, the most popular loan among home buyers and families seeking to refinance, are more than 1.6 percentage points below the recent peak set at the end of October 2008,” said Frank Nothaft, Freddie Mac vice president and chief economist.

Mortgage rates for conventional conforming 30-year fixed-rate loans reached 50-year lows in the first quarter of 2009, according to Freddie Mac. On a $200,000 loan, this means a monthly savings of almost $212 in monthly mortgage payments, or more than $2,500 per year.

If this pace keeps up for the rest of 2009, that will provide homeowners about $10 billion in mortgage-payment savings during the first year after refinance, Freddie Mac predicted.

In late April, Freddie Mac’s Primary Mortgage Market Survey reported that average 30-year fixed-rate mortgages dipped to a record low 4.78 percent.

Last year at this time, 30-year fixed mortgages averaged 6.06 percent. The benchmark fixed-rate average has never been recorded lower in Freddie Mac’s survey, which goes back to 1970.

Average 15-year fixed-rate loans hit a record 4.48 percent in late April. A year ago, 15-year loans averaged 5.59 percent. It is the lowest the 15-year loan has been since Freddie Mac began tracking it in August of 1991.

In the first quarter of 2009, half of borrowers who refinanced their loan lowered their annual mortgage interest rate by at least 20 percent according to the Freddie Mac report.

The median ratio of new-to-old mortgage rate was 0.80, the lowest ratio since the third quarter of 2003, and corresponds to a new interest rate that is about 1.25 percentage points below the old rate. In the fourth quarter of 2008 the ratio stood at 0.92.

The report also indicates that 58 percent of prime borrowers who refinanced a conventional, first-lien mortgage either kept the same principal balance or reduced it, up from a revised 45 percent in the fourth quarter. The share of refinance loans resulting in new loan amounts that were at least 5 percent higher than the paid-off first-lien mortgage balances fell to a five-year low of 42 percent in the first quarter; the fourth-quarter cash-out share was revised down to 55 percent.

“In the past two quarters, about $32 billion in home equity was cashed out by homeowners when they refinanced their home mortgage. This is the least we’ve seen over two successive quarters in the past eight years,” said Amy Crews Cutts, Freddie Mac deputy chief economist.

“We also saw a rise in the volume of home equity loans and lines of credit that were rolled into a new first lien during refinance,” she said. In the fourth quarter, $4.7 billion in second-lien debt was consolidated, increasing to $7.0 billion in the first quarter of 2009.

Because second liens generally carry higher interest rates, the consolidation of $11.7 billion into a lower-cost first lien provides about $200 million in interest savings over the next year to these households, Crews Cutts said.