Cash-out refinancing steady in 3Q '05 -Freddie Mac
Tue Nov 1, 2005 03:44 PM ET
NEW YORK, Nov 1 (Reuters) - The number of U.S. homeowners who took cash out of their home equity was unchanged in the third quarter of 2005 from the previous quarter, with such refinancing remaining robust, Freddie Mac said on Tuesday.
In the third quarter, 72 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages with loan amounts that were at least 5 percent higher than the original balances, the nation's No. 2 mortgage finance company said.
Such refinancings were at the highest level since the fourth quarter of 2000, when they were at 74 percent.
"Interest rates on 30-year fixed-rate mortgages remained low, averaging 5.76 percent, in the third quarter while the prime rate, key to home-equity lending and lines of credit, rose to 6.75 percent," said Frank Nothaft, Freddie Mac's vice president and chief economist, in a press release accompanying the report.
"The sharp rise in the cost of home equity lines of credit and the expectation that mortgage interest rates will go higher over the next year induced homeowners to look toward the refinancing option to extract home equity for home improvements or other investment purposes now," he said.
Home equity cash extracted from the refinancing of prime first mortgage liens will total $204 billion in 2005, up from the $142 billion converted to cash in 2004, Nothaft noted.
Activity was strong in the third quarter, even with higher interest rates, with 44 percent of new mortgage applications submitted for refis, according to Amy Crews Cutts, Freddie Mac's deputy chief economist.
"With the expectation that mortgage rates will rise further in the fourth quarter, refinance volumes overall should slow but cash-out refis will continue to be in demand, and equity extraction through refinance should hit over $200 billion this year, falling to about $114 billion in 2006," Cutts said in the statement.
In the third quarter of 2005, the median ratio of old-to-new interest rate was 1.09, or one-half of those borrowers who paid off their original loans and took out a new one had an interest rate on their old loan that was at least 9 percent higher than the new interest rate, the report said. (*)
In the third quarter of 2005, homeowners who refinanced lowered their interest rate by an average of 0.57 percentage point, Cutts said.
The cash-out refinance report also showed that the median value of properties refinanced during the third quarter of 2005 appreciated 23 percent during the time since the original loan was made, unchanged from the second quarter, the company noted.
Freddie Mac's estimates come from a sample of properties on which the company has funded at least two successive loans. Transactions are then screened to verify the last loan was for refinancing and not purchasing. The analysis does not track the use of funds made available from these refinances. |
