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About 22% of homeowners who refinanced their first-lien mortgage during the last quarter put in cash to lower principal, tying a record for the third highest “cash-in” share since Freddie Mac started keeping records in 1985.
Many borrowers today must pay down principal to lower their loan-to-value ratio in order to qualify to refinance their mortgage, either because their Ann Arbor homes have declined in value, or because of tighter lending standards. A growing number are willing to do it because mortgage rates are at 50-year lows, at the same time that relatively safe, cash investments such as certificates of deposit, savings accounts and money-market funds are paying very low interest, “which makes the choice of paying down mortgage principal very attractive to borrowers with extra cash reserves,” says Frank Nothaft, Freddie Mac’s vice president and chief economist.
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