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Most Homeowners Either Maintain or Reduce Mortgage Debt When Refinancing

An interesting trend has occurred over the past several years when the typical homeowner refinances their mortgage loan. During the housing boom, the home was seen as a piggy bank to take money out of when refinancing. Millions of homeowners refinanced more than once has as their home appreciated in value. 

These days 81 percent of borrowers who refinance either maintain their existing mortgage debt or reduce the debt according to re report by Freddie Mac. I bet the driving factor behind this statistic is the decline in home values over the past several years.

Homeowners are refinancing to take advantage of record low refinance rates but they probably can't take any equity out of their home since home prices are down considerably.

Homeowners who refinanced and reduced their mortgage debt probably did so to be able to refinance. Paying down principal to have the required 20 percent equity that most lenders require these days when refinancing.

With current 30 year conforming refinance rates today around 3.50 percent and today's refinance rates on 15 year conforming under 3.00 percent it makes financial sense to refinance. Just this past week average 30 year mortgage rates hit an all-time low of 3.49 percent.

Of 81 percent of borrowers who refinanced a mortgage, 59 percent maintained about the same loan amount, and 23 percent of refinancing homeowners reduced their principal balance.

If you have a current mortgage with a rate of 4.50 percent or higher on a 30 year loan or a rate of 4.00 percent or higher on a 15 year loan you should consider refinancing your loan.

There are some lenders offering current refinance rates on 30 year conforming loans as low as 3.25 percent. Mortgage rates today on 15 year conforming loans can be found as low as 2.75 percent with points.

In Freddie Mac's report the typical borrower who refinanced their mortgage reduced their mortgage rate by about 1.5 percentage points. On a $200,000 loan, that translates into saving about $2,900 in interest during the next 12 months.

You can see the benefits of refinancing to a lower refi rate. There are costs involved when refinancing but if you're planning on staying in the home for several years or longer you easily recoup the costs in mortgage interest savings.
Author: Brian McKay
August 6th, 2012