Why Home Refinancing Boom Is Different This Time

Dan Green/Waterstone Mortgage, Ohio: Not all households are choosing to reduce payments. Many are choosing to reduce term. At today's rates, the first payment of a 15-year mortgage is comprised of 67% principal. To get that point on a 30-year mortgage would take 18 years. More homeowners are asking about amortization schedules, and the benefits of paying extra principal each month. There's more talk of saving than spending.

Julian Hebron/RPM Mortgage, California: Refi to lower payment, but keep making previous payment to pay loan down faster. Example: If you use our average loan of $550,000 and super-conforming rates of 3.5% now vs. 4.5% a year ago, a borrower's payment drops from $2,787 to $2,429 (this factors in the paydown of $550,000 to $541,000 over 12 months). If a borrower keeps making old payment on new loan, thereby paying loan down by an extra $358 per month, they cut 6 years (or 20%) off a 30-year term.

Suffice it to say, when it comes to home equity, we have fast become the anti-ATM society, by will or by force (we don't have a whole lot of home equity anymore).

After trillions of dollars in lost home equity, Americans now appear to want it back so badly that they're willing to pay it in themselves. They also want less debt for a shorter period of time.

This sounds like responsible, conservative fiscal planning, but it also means that savings from rock-bottom interest rates do not get paid back into the economy the way so many politicians and analysts have suggested.



--Written by Diana Olick at CNBC

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