Cash Outs Refinancing of Mortgages Rise in 1st Quarter 2006 According to Freddie Mac

Cash out refinancing has risen in the  first quarter of 2006 as refinancing for improved interest rates slowed to a crawl. People are  now looking on extracting some of the appreciation out of their  homes instead of trying to get a lower rate. Freddie Mac has come out with the new report on the trend.

In the first quarter of 2006, 88 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages with loan amounts that were at least five percent higher than the original mortgage balances, according to Freddie Mac’s quarterly refinance review. This percentage is up from the fourth quarter of 2005, when the share of refinanced loans that took cash out was a revised 81 percent, and is the highest since the third quarter of 1990.
“The share of all mortgages that were for refinance fell slightly in the first quarter of 2006 to 44 percent from 45 percent in the fourth quarter of 2005. Over that same period interest rates on all mortgages increased between 0.02 and 0.25 percent,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Almost no one is refinancing to reduce their interest rate in today’s environment. In fact, the first quarter of 2006 is the first time in 20 quarters in which the new mortgage rate was higher than the old one for more than half of refinancing borrowers. One reason why homeowners may be willing to increase the mortgage rate on their first-lien mortgage is because interest rates on most home equity lines of credit have been pushed up again as the Fed increased short-term interest rates in January and March, which in turn pushed up the prime rate. Home-equity loans are typically linked to the prime rate, which currently is at 7.75 percent, and many home equity loans have rates that are one percent or more above the prime rate. In contrast, the average rate on 30-year fixed-rate mortgages is presently near 6.5 percent. via Freddie Mac News Archive