One of the main reasons a borrower refinances their mortgage is to reduce their debt. According to Freddie Mac, the majority of borrowers have been successful in doing so.
The third quarter refinance analysis from the government-sponsored enterprise showed that 83 percent of refinancing homeowners were able to maintain or reduce their debt in the third quarter. Of these borrowers, 29 percent reduced their principal balance, while 54 percent maintained the same loan amount.
"On average, borrowers who refinanced reduced their interest rate by about 1.7 percentage points," said Frank Nothaft, Freddie Mac vice president and chief economist. "On a $200,00 loan, that translates into saving about $3,500 in interest during the next 12 months."
Changes to the Home Affordable Refinance Program and record low mortgage rates have both helped spur a refinance boom in 2012. However, activity has slowed in recent months. According to the Mortgage Bankers Association, refinance activity dropped 5 percent on a seasonally adjusted basis in the week ending November 2.