The percentage of U.S. mortgages refinanced at higher balances reached its highest level in two years in the third quarter, according to Freddie Mac, the nation's No. 2 mortgage buyer.
Sixty percent of refinancing loans had balances that were at least 5 percent higher than the original mortgage amount, up from 42 percent of loans in the second quarter that ended June 30, Freddie Mac chief economist Frank E. Nothaft said in a prepared statement last week. Still, the dollar volume of cash-out loans fell as refinancing declined by half.
Higher mortgage rates in the second quarter, when processing began for most of the third-quarter loans, deterred many people from refinancing. But they were still low enough to attract homeowners who needed cash, Nothaft said. The average fixed-rate mortgage rose to 6.34 percent in mid-May, the highest of the year.
"For cash-out refinancers, these low rates were a very cost-effective way for them to finance a big project such as home improvements," Nothaft said.
The percentage of cash-outs -- or mortgages refinanced at higher balances -- was the highest since the second quarter of 2002, when it was 63 percent.
Cash-out loans allow people to convert home equity into money for home furnishings, renovations, automobiles and other expenses.
Mortgage refinancing fell to $215.2 billion in the third quarter ending Sept. 30, the lowest in almost four years, from $432.7 billion in the second quarter, according to the Mortgage Bankers Association. Using those figures, the dollar volume of cash-out loans fell to $129.1 billion from $181.7 billion. Freddie Mac doesn't provide the dollar volume for cash-out loans.
Homeowners who refinanced mortgages during the third quarter lowered their borrowing costs by an average of 0.68 percentage point, according to the Freddie Mac report. On an average loan size of $150,000, that translates to a monthly savings of $67 -- or $804 a year, the report said.
The amount of home equity converted to cash this year probably will fall to $71.7 billion from a record $138.1 billion in 2003, Freddie Mac said in August.