Mortgage Debt Decreased by $400B

By Stevie Duffin Updated on 9/25/2013

Mortgage debt dropped over $400 billion in the period between 2007 and 2010.  This is primarily because more people continued to reduce their mortgages by paying them down and also turned to refinancing to reduce their monthly mortgage payments.

Statistics by the Federal Reserve assess the drop to be even bigger than this. Some estimates by the Fed put the number at $700 billion. The nation's total outstanding mortgage debt was $13.83 trillion in the fourth quarter of 2010 compared to $14.52 trillion at the end of 2007.

A good portion of the reduction in mortgage debt is a result of homeowners refinancing first-lien mortgages in the first quarter. Homeowners either maintained about the same loan amount or lowered their principal balance by paying-in additional money at closing (cash-in refinancing).

The typical borrower cut their mortgage interest rate by 1.2% through refinancing. About one out of every four borrowers in refinancing took "cash-out" and increased their loan balance by at least 5%.

In a related study, Freddie Mac reported that in the first quarter, fixed-rate mortgage loans made up over 95% of all refinanced loans.