Cash-Out Refinancing Is Out – Cash-In Mortgages Are In

Not surprisingly, cash-out refinancing is way down. What is surprising is the huge jump in cash-in refinancing, something practically unheard of during the housing boom earlier in the decade.

Over a third of borrowers doing mortgage refinances in the third quarter did cash-in refinancing, according to Freddie Mac. The share of cash-in refinancing jumped to 33 percent in the third quarter from 23 percent in the semortgage refinance, cash-out refinance, mortgage ratescond quarter. It was the second highest cash-in share since Freddie Mac began compiling records on mortgage refinances in 1985. Learn about refinancing.

In a cash-in refinancing, something practically unheard of during the housing boom earlier in the decade, the homeowner pays down their mortgage balance at closing. Lower home values, stricter lending requirements for home equity, and homeowners' desire to pay down their mortgages caused the big jump in cash-in refinancing, according to Freddie Mac. Many homeowners must pay down their mortgages in order to qualify for today's low mortgage rates. Values ​​of homes involved in mortgage refinances dropped by a median of 3 percent, according to Freddie Mac. Some homeowners may pay down their mortgage to qualify for a shorter term mortgage that has a lower mortgage rate in what's called a term refinancing. Check current mortgage rates. Low interest rates on savings accounts could also be a reason for more cash-in refinancing. With savings rates for CDs between 1 or 2 percent, some homeowners may opt to use their savings to find lower mortgage rates.

Low mortgage rates drive refinancing

Mortgage rates on 30-year fixed-rate mortgages in the third quarter dropped to levels not seen since the early 1950s, prompting many borrowers to seek refinancings.

Not unexpectedly, the number borrowers completing cash-out refinancings, dropped to a record low. The share of cash-out refinances, defined as those who increased their loan balance by at least 5 percent, accounted for 18 percent of all refinance mortgages in the third quarter, the lowest level since 1985. Homeowners who refinanced reduced their mortgage rates by a median of about 1 percent point, or at least 18 percent. In the first year, the new mortgage rate will save borrowers over $ 1,400 in principal and interest payments on a $ 200,000 loan, according to Freddie Mac.

"When rates fall to new lows we typically see more 'rate and term' refinancers, who are looking only to reduce their interest payments, and relatively fewer cash-out borrowers," said Frank Nothaft, Freddie Mac vice president and chief economist.

"But now we're also seeing a very large share of borrowers reducing their mortgage debt when they refinance." Consumer debt across the board is down since the start of the recession, with non-mortgage consumer debt falling more than 5 percent since 2008, according to the Fed. "