Refinancing homeowners dropped their interest rate an average 1.8 points last quarter, according to numbers released this week by Freddie Mac, as borrowers took advantage of November's record-low interest rates on mortgage loans. That 33 percent savings is the largest since Freddie Mac began keeping records 27 years ago.
At the same time, refinancers took relatively little cash out of their refinance. Nationally, Americans cashed out just $8.1 billion in the fourth quarter, down from the high of $84 billion in the Spring of 2006, at the height of the real-estate boom.
That means most who refinanced dropped their monthly payment along with their interest rate. "On a $200,000 loan, that translates into saving about $3,600 in interest during the next 12 months," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.
Not everyone is choosing to lower their payment, however. Many borrowers are taking their gains in time, shortening the term of their new mortgages to 15 years and keeping their monthly payment steady, or even paying a little more. Last quarter, nearly 30 percent of refinancers switched from 30 year to 15 year mortgages, and next week, when the fourth-quarter transition report comes out, that percentage is expected to stay high.
The charge into 15-year mortgages comes as many baby boomers look to pay off their homes in time for their retirement. "If you're a boomer and looking to own your home free and clear around the time you want to retire, these record-low interest rates are providing a great opportunity," said Chad Wandler, a Freddie Mac spokesperson.