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It’s official. Americans are taking advantage of historically low mortgage rates and paying down the debt on their homes (or maintaining it at the same level) at a rate we haven’t seen for the past 26 years, according to Yahoo Finance.

Freddie Mac released a report that shows that in the fourth quarter of 2011, 85 percent of homeowners refinanced and either brought money to the table to pay down debt or did what’s known as a rate-term refinance (meaning you refinance exactly what you owe and don’t borrow more).

This is the highest amount of folks not doing cash-0ut refinances that Freddie Mac has reported in the 26 years of its survey. Contrast this to the average amount of refinances that included cash out during the period from 1985–2011, which is 46 percent. In other words, 46 percent of folks who refinanced their mortgages from 1985–2011 took cash out of their home equity when they refinanced. So, for example, if a person had a $100,000 mortgage but their home was worth $150,000, they often would borrow more than the $100,000 of their original mortgage.

But not so much anymore.

Frankly, I think it makes good sense to maintain or lower debt when refinancing. I just refinanced and I maintained. No questions there.

Here’s some of the article, in case you’re interested:

• In the fourth quarter of 2011, 85 percent of homeowners who refinanced their first-lien home mortgage either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table, a 26-year high. Of these borrowers, 37 percent maintained about the same loan amount, and 49 percent of refinancing homeowners reduced their principal balance; this latter percentage reflecting “cash-in” borrowers was the highest in the 26-year history of the analysis.
• “Cash-out” borrowers, those that increased their loan balance by at least five percent, represented 15 percent of all refinance loans, the lowest percentage in the 26 years of analysis; the average cash-out share during the 1985 to 2010 period was 46 percent.
• The median interest rate reduction for a 30-year fixed-rate mortgage was about 1.4 percentage points, or a savings of about 26 percent in interest rate. Over the first year of the refinance loan life, the median borrower will save about $2,700 in interest payments on a $200,000 loan.
• The net dollars of home equity converted to cash as part of a refinance, adjusted for inflation, was at the lowest level in 16 years (since the third quarter of 1995). In the fourth quarter, an estimated $5.5 billion in net home equity was cashed out during the refinance of conventional prime-credit home mortgages, down from $5.6 billion in the third quarter and substantially less than during the peak cash-out refinance volume of $83.7 billion during the second quarter of 2006.

What do you think? Is this a good trend? Fiscally responsible? Or should cash-out refinancing always be one of the choices American homeowners have when refinancing? Read the full article here.

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