More refinance mortgage borrowers paid down their principal in Q409 than in any other quarter since Freddie Mac ($0.00 0%) started tracking the statistic in 1985.  It’s the greatest share of “cash-in” refinance borrowers yet, the GSE says.

During the last quarter, 33% of borrowers paid down their original principal by $1,000 or more during the process of refinancing their mortgage.  In Q493, by way of comparison, the statistic was 23%. Freddie Mac deputy chief economist Amy Crews Cutts told HousingWire a primary impetus for borrowers to pay down their principals is to take advantage of lower rates on mortgage deals with a loan-to-value (LTV) ratio of 80%.

Q409’s results compare to 18% of cash-in refinancings in Q309 and 17% in Q408.

The surge in cash-in refinance borrowers comes after years of borrowers “cashing out” to profit from rising property values during the housing boom. The Federal Reserve’s mortgage-backed security (MBS) purchase program has dropped interest rates to historic levels, at one point averaging as low as 4.71% in December, according to Freddie Mac’s weekly rate survey. That’s encouraged more borrowers to refinance their mortgage to take advantage of the low rates.

“This transformation from a cash-out refi market to a cash-in refi market is consistent with other data we’ve seen on households reducing their overall debt burdens, particularly revolving credit like credit cards,” Freddie Mac chief economist Frank Nothaft said in a press statement. “From September of 2008 to November of 2009, consumers cut $100bn dollars in revolving debt from their obligations, according to the Federal Reserve Board.”

The rate of borrowers who increased their loan balance by 5% or more was at a record low 27% in Q409. The previous low for cash-out share of refinance borrowers was 33% during Q203. During the quarter, homeowners cashed out about $11bn in home equity by refinancing prime credit rating mortgages, the smallest quarterly amount in nearly nine years. For all of 2009, homeowners cashed out nearly $70bn in home equity, the lowest amount since 2000, when $26bn was cashed out.

“The main causes of the decline in cash-out refinance are declining home prices in many areas of the country that have eliminated equity that could have been extracted and tighter underwriting standards for loan-to-value ratios,” Crews Cutts said in the press statement. “Among the refinanced loans in our database, the median appreciation of the collateral property was a negative 2% over the median life of the prior loan of 3.6 years.”

Write to Austin Kilgore.

The author held no relevant investments.