Refinancing Pays Off Big for Borrowers

February 8, 2013

Home owners who refinanced in the fourth quarter of 2012 were able to trim their interest rate by about 1.8 percentage points on average. That amounted to an average savings of about 33 percent on the interest rate — which Freddie Mac reports is the largest percentage reduction it's ever recorded.

"On a $200,000 loan, that translates into saving about $3,600 in interest during the next 12 months,” says Frank Nothaft, Freddie Mac’s chief economist. 

In December, fixed mortgage rates had reached new lows, with 30-year products averaging 3.4 percent and 15-year averaging 2.7 percent that month.

Thirty-nine percent of home owners who refinanced were able to reduce their principal balance by paying additional money at the closing table, Freddie Mac reports. Borrowers who were able to refinance using the Home Affordable Refinance Program (HARP) had an average interest rate reduction of 2 percentage points. 

“While all borrowers who refinance have benefited, HARP has enabled many borrowers that traditionally would not have had access to refinance to obtain low rates and significantly reduce their interest rate and monthly payment,” Nothaft says. “This increases the likelihood that these borrowers will continue to perform on their loan and remain home owners.” 

Source: Freddie Mac

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