Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Some amazing statistics in this Bloomberg story as refinancing is coming back as an American pasttime. However this time around it does not appear that “cash out” refinance is as popular as people have become more conservative. Of course lower payments means more money in the hands of American consumers which is making up for the stagnating wages – but we’ve seen this game before. At some point we cannot just rely on government transfers and EVER lower interest rates to drive consumption. But for now kick the can is the only way.
- …driving refinance applications to jump to their highest level since 2009, according to the Mortgage Bankers Association.
- Borrowers are refinancing at an annualized rate of 22 percent, according to Lender Processing Services (LPS). At this rate, more than one in five borrowers will refinance over the next year.
- Borrowers who have at least 20 percent equity in their homes are even more likely to refinance. Among those homeowners, one in three will refinance in the next year if the current pace continues.
- Refinancing is normally not an option for borrowers who owe more than their home is worth. But they’ve have been getting into the act this year, thanks to the Obama administration’s Home Affordable Refinance Program, which rewards banks for working with underwater homeowners. Since the start of 2012, there’s been a 65 percent increase in refis for borrowers who owe at least 20 percent more than their homes are worth; HARP now accounts for about a quarter of all refis.
- With rates so low, some borrowers are taking out shorter-term loans that let them pay down their debt quicker. Gone are the days people take out cash when they refinance. In almost a quarter of all refinancings in the second quarter of 2012, homeowners ponied up cash to reduce the principal on their loans, according to Freddie Mac. A further 59 percent kept their loan balance the same—the most ever on record.
- Lower interest rates free up real monthly cash flow for homeowners. In the second quarter—before the Bernanke-induced drop in rates—the average refinancing cut the homeowner’s interest rate by 28 percent, the biggest reduction in the 27 years since Freddie Mac began tracking the data. That means a homeowner with a $200,000 loan would save about $2,900 in their first year, Freddie Mac says.
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