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Borrowers on trend to reduce loans
WASHINGTON, Conn., U.S. borrowers are bringing more cash to the table at mortgage closings, the U.S. Federal Home Loan Mortgage Corp. said Wednesday.
In the second quarter, 22 percent of consumers who refinanced first-lien mortgage loans went to the closing with cash on hand, the third-highest percentage since 1985, when Freddie Mac began keeping records of borrowers who"cash-in" at the closing.
In the first quarter of the year, 19 percent or refinancing borrowers lowered their principal on the day of the closing.
Headed in the other direction, 27 percent of refinancing in the second quarter included borrowers who increased their balances by at least 5 percent, Freddie Mac said. From October 2009 through June 2010, a record was set for the lowest three-quarters of "cash-out" activity.
The cash-out activity was lower due to declining home prices and tighter lending policies, Freddie Mac said in a statement.
"If you pay down your mortgage balance you save the interest you would pay on the loan, about 4.6 percent at today's rates, over the life of the loan versus earning a percentage point or less in certificates of deposit and money markets," said Frank Nothaft, Freddie Mac vice president and chief economist.
The savings is also guaranteed -- in contrast to "the riskiness of stock market investments," Nothaft said.
WASHINGTON, Conn., U.S. borrowers are bringing more cash to the table at mortgage closings, the U.S. Federal Home Loan Mortgage Corp. said Wednesday.
In the second quarter, 22 percent of consumers who refinanced first-lien mortgage loans went to the closing with cash on hand, the third-highest percentage since 1985, when Freddie Mac began keeping records of borrowers who"cash-in" at the closing.
In the first quarter of the year, 19 percent or refinancing borrowers lowered their principal on the day of the closing.
Headed in the other direction, 27 percent of refinancing in the second quarter included borrowers who increased their balances by at least 5 percent, Freddie Mac said. From October 2009 through June 2010, a record was set for the lowest three-quarters of "cash-out" activity.
The cash-out activity was lower due to declining home prices and tighter lending policies, Freddie Mac said in a statement.
"If you pay down your mortgage balance you save the interest you would pay on the loan, about 4.6 percent at today's rates, over the life of the loan versus earning a percentage point or less in certificates of deposit and money markets," said Frank Nothaft, Freddie Mac vice president and chief economist.
The savings is also guaranteed -- in contrast to "the riskiness of stock market investments," Nothaft said.
