Freddie: Refis Seen Reducing Payments by $2.5B in Coming Year

According to a study by Freddie Mac of its own portfolio, refinancings during the first quarter are on track to reduce consumer mortgage payments by $2.5 billion in the coming year. "The payment savings from 'rate-and-term' refinancing done during the quarter is about $160 a month on a $200,000 loan and in aggregate this adds up to about $2.5 billion," said Freddie Mac chief economist and vice president Frank Nothaft. Half of all borrowers who refinanced their loans during the period lowered their interest rate by at least 20%, according to Freddie Mac. The median ratio of new-to-old mortgage rate was 0.80 in the quarter and this marked the lowest ratio since the third quarter of 2003, Freddie Mac said. The government-sponsored enterprise added that this corresponds to a new interest rate that is about 1.25 percentage points below the old rate. Refinances in which the resulting new loan amounts were at least 5% higher than paid-off first-lien mortgage balances fell to a five-year low of 42% during the period. The volume of home equity loans and lines of credit rolled into the first lien during refinance increased during the first quarter to $7 billion in second-lien debt consolidations from $4.7 billion the previous three-month period, according to Freddie deputy chief economist Amy Crews Cutts. "Because second liens generally carry higher interest rates, the consolidation of $11.7 billion into a lower-cost first lien provides about $200 million in interest savings over the next year to these households," she said.