Have Homeowners Strengthened Their Fiscal Houses?

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mortgagepic1Freddie Mac (FMCC.OB) – which was chartered by Congress in 1970 to provide additional security liquidity, stability, and affordability to the U.S. housing market – reported Monday that its refinance analysis has shown that “homeowners who refinance continue to strengthen their fiscal house” in the fourth quarter.

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Home loan borrowers have put their fiscal house in order amid the growing economy, with 84 percent of of homeowners who refinanced their first-lien home mortgage maintaining the same loan amount or lowering the principal amount by bringing additional funds to the closing table.

Homeowners who refinanced also reduced interest rates by 33 percent, the largest decrease in the institution’s 27 years of analysis and a drop of 1.8 percentage points from the previous quarter. On a $200,000 loan that translates into savings of approximately $3,600 in interest during the following 12-month period, said Freddie Mac Vice President and Chief Economist Frank Nothaft in the press release.

Not only are Americans paying off mortgages at a fast pace and at low interest rate, they are also choosing to cash out less often. In the fourth quarter, an estimated $8.1 billion in net home equity was converted to cash as part of a refinance, down from $8.2 billion last quarter. The peak of cash-out refinancing came in the second quarter of 2006, when homeowners took out $84 billion. This means is that more homeowners are cashing in and lowering the amount owed on mortgages, rather than cashing out…

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