Freddie Mac reported recently that refinance activity was strong in the 4th quarter of 2006, while the percentage of those taking cash out declined.

In the fourth quarter of 2006, 84 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages with loan amounts that were at least five percent higher than the original mortgage balances, according to Freddie Mac’s quarterly refinance review. This percentage is down from the third quarter of 2006, when the share of refinanced loans that took cash out was a revised 87 percent.

Further, Freddie reports that the refinance share of applications rose from 41% in the third quarter of last year to 46% in the 4th quarter. For 2007, though the outlook for rates appears to be lukewarm - they’re expected to remain flat or increase slightly - Freddie Mac still expects quite a bit of refinance activity due to the fact that many with Adjustable Rate Mortgages will have their rates reset. In addition, with prime rate now in the relative stratosphere at 8.25%, the home equity line of credit to finance large expenses (at prime rate or prime + [x]) is less attractive than cashing out with a new first mortgage, even if the rate on the first is increased a bit as a result.

Tags: adjustable rate mortgages, freddie mac, home equity, line of credit, prime rate, refinancing

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