Refinancing

More borrowers were able to reduce their monthly mortgage payments and shorten their loan terms, Freddie Mac reports. Refinancing activity accounted for 63 percent of all single-family originations in the first quarter of this year, according to the lending giant.

An estimated 7.1 million home owners could benefit from refinancing their mortgage and reduce their monthly mortgage payments, finds a new report released by Black Knight Financial Services.

“Black Knight looked at the population of borrowers whose current interest rates – as well as credit scores and loan-to-value ratios – mark them as good candidates for refinancing,” says Trey Barnes, Black Knight’s senior vice president of Loan Data Products.

By the end of February 2015, there were about 7.1 million potential refinance candidates. As a comparison, in February 2014, about 4.1 million borrowers were found to be able to benefit from refinancing their mortgage, according to Black Knight Financial Services’ research

The average interest rate reduction for refinancers was about 1.2 percentage points. On a $200,000 loan, that translates into savings of about $2,500 in interest during a 12-month period, according to Freddie Mac’s report. Home owners who refinanced through HARP benefited even more, reducing their average rate by 1.8 percentage points and saving around $3,500 in interest during the first 12 months – or about $290 monthly.

“Refinance borrowers are primarily looking to reduce payments and pay down principal faster,” says Len Kiefer, Freddie Mac deputy chief economist. “We estimate that borrowers who refinanced in the first quarter will save on net more than $1.4 billion in interest payments over the first 12 months of their new loan. Nearly a third of borrowers who refinanced shortened their loan term.”

Here are some additional findings from Freddie Mac’s refinancing report:

• About 27 percent of borrowers increased their loan amount when refinancing, either by cashing out equity or consolidating loans, compared to 17 percent at the same time last year. Still, the percentage is well-below the peak of 89 percent in 2006.

• More than 95 percent of borrowers who refinanced in the first quarter chose a fixed-rate loan. Seventy-six percent of borrowers who had a hybrid ARM refinanced into a fixed-rate loan during the first quarter.

• For all non-HARP refinances, the median property value on the home increased 5 percent between the dates of placement of the old loan and the new refinance loan. Also, the prior loan had a median age of 5.6 years, down from 6.8 years in the fourth quarter of 2014.