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Most Homeowners Maintain or Reduce Mortgage Debt When Refinancing

Most homeowners maintain or reduce mortgage debt when refinancing their loan, continuing the trend since the housing bust when most homeowners took money out when refinancing. In the fourth quarter of 2012, a whopping 84 percent of homeowners either maintained or reduced their mortgage balance in a refinance analysis released by Freddie Mac.

Millions of homeowners in a position to refinance have taken advantage of record low refinance rates to reduce their monthly mortgage payments by refinancing. Refinance mortgage rates today on 30 year conforming loans are averaging 3.59 percent, just above record lows set late in 2012.

In the refinance report, 84 percent of homeowners who refinanced their first-lien mortgage either maintained almost the same loan amount or lowered their principal balance by paying in additional money at closing. The record was 85 percent during the fourth quarter of 2011, 84 percent is just one percent shy of the record set the previous year.

Of these borrowers who refinanced, 46 percent maintained about the same mortgage loan amount, and 39 percent of refinancing homeowners reduced their mortgage loan balance. With current mortgage rates just above record lows, homeowners who refinanced got a much lower interest rate on average.

The average mortgage interest rate reduction was almost 1.8 percentage points, or a savings of about 33 percent in the interest rate. This is the largest percent reduction recorded in the 27 years of analysis by Freddie Mac. If you are in a position to refinance your mortgage by having enough equity in your home, you should refinance.

If you refinanced and got the average 1.8 percent reduction from your current rate, you would save a lot in interest payments. In the first 12 months you would save you $1,800 on every $100,000 borrowed. Over the life of the loan, you would save tens of thousands or hundreds of thousands of dollars in interest payments, depending on the loan amount.
Author: Brian McKay
February 5th, 2013