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Freddie: Borrowers strengthen their household budgets with refis

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Borrowers who refinanced their homes in the first quarter will save approximately $7 billion in interest over the next 12 months, Freddie Mac said in its first-quarter 2013 quarterly refinance report.

The enterprise’s quarterly report is culled from data on sample properties in which Freddie Mac has funded two successive conventional, first-mortgage loans, with the second being a refinancing.

The overall data shows consumers strengthening their balance sheets by using low mortgage rates to move into reduced monthly payments. In other cases, they are refinancing into shorter loan terms or obtaining a safer long-term, fixed-rate mortgage.

Freddie says in the first quarter $8.1 billion in net home equity was cashed out during the refinancing of conventional prime-credit mortgages. This figure is virtually unchanged from the previous quarter, but substantially down from the peak cash-out refinance volume of $84 billion in the second quarter of 2006.

Of those borrowers who refinanced during the first quarter, 28% shortened their loan terms, 68% kept the same loan terms as the loan they paid off and 3% chose to lengthen their loan terms, Freddie Mac said.

About 85% of those who refinance a first-lien home mortgage maintained the same loan amount after refinancing their mortgage or lowered their principal balance by putting more down at the closing table.

About 95% of refinancing borrowers selected a fixed-rate loan in 1Q.

In fact, 87% of borrowers with a hybrid ARM selected a fixed-rate loan when going through a refi in the first quarter.

Meanwhile, Freddie says the Home Affordable Refinance Program has helped 2.5 million borrowers refinance since its inception through March of 2013.

HARP loans represented more than 20% of the first-quarter refinance loans acquired by Freddie Mac and Fannie Mae.

For all those loans refinanced through HARP in 1Q, the median depreciation in property value hit 28%, with the prior loan having a median age of 6 years.

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