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Americans tap least home equity in a decade

WASHINGTON - Americans in the second quarter tapped the smallest amount of home equity in a decade, showing households are focused on repairing tattered finances.

Owners took out $8.3 billion while refinancing prime home loans as borrowing costs dropped from April through June, down from $8.4 billion in the previous three months and the least in 10 years, according to a report Wednesday by mortgage giant Freddie Mac.

Twenty-two percent chose to reduce loan principal, matching the third-highest rate since records began in 1985.

Instead of extracting cash to binge on everything from cars to vacations as in previous recoveries, owners are refinancing to improve terms and reduce mortgage payments. The mending of household balance sheets means consumers will be in a better position to join the recovery once employment picks up.

"It'll put consumers on firmer ground going forward," said Michael Bratus, an economist at Moody's Economy.com in West Chester, Pa.

"This is a rate-and-term refinance boom as opposed to a cash-out boom," said Michael Larson, a housing analyst at Weiss Research in Jupiter, Fla. "Five years ago you had people liquidating equity to finance debt-fueled consumption. Now, refinancing gives them breathing room."

Figures from the Mortgage Bankers Association signal the drive to take advantage of record-low mortgage rates has accelerated this month. The group's refinancing gauge for the week ended July 16 reached the highest level in a year. Refinance applications accounted for 79.4 percent of all mortgage requests, the most since April 2009.

Ron Keating, 50, a federal employee in Woodbridge, Va., said he lowered his monthly mortgage payment by about $150 after refinancing. "The less I pay, the better," he said.

The average rate on a 30-year fixed mortgage fell to a 4.56 percent in the week ended July 22, the lowest since Freddie Mac, the second-biggest buyer of U.S. mortgages after Fannie Mae, began keeping records in 1971.

The average homeowner cut his mortgage rate by 0.9 percentage point in the second quarter, according to Freddie Mac. On a $200,000 loan that would lead to a savings of $1,300 in the first year.

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