Even with record-low mortgage rates, many refinancing borrowers are choosing to pay down their loan balances rather than borrow more money.

According to a recent report by Freddie Mac, “cash-in” borrowers – those who reduced their principal balance by paying in additional money at the closing table – represented 22 percent of all borrowers who refinanced during the second quarter, up from 19 percent the previous quarter. This, Freddie Mac said, tied the record for the third highest cash-in share since the GSE began keeping records on refinancing patterns in 1985.

“Interest rates on fixed-rate mortgages are at 50-year lows, making refinancing attractive if borrowers qualify, and similarly rates on savings instruments like CDs are also very low, which makes the choice of paying down mortgage principal very attractive to borrowers with extra cash reserves,” said Frank Nothaft, Freddie Mac VP and chief economist.

“If you pay down your mortgage balance you save the interest you would pay on the loan, about 4.6 percent at

today’s rates, over the life of the loan versus earning a percentage point or less in CDs and money markets and without the riskiness of stock market investments, which have not performed well in the past couple of years either,” Nothaft continued.

“Cash-out” borrowers – those that increased their loan balance by at least 5 percent – represented 27 percent of all refinance loans during the quarter, down from 28 percent during the first quarter. According to Freddie Mac, the cash-out shares over the last three quarters were the lowest on record.

Freddie Mac said the decline in cash-out refinancings was due in large part to reduced home prices and tighter underwriting standards for loan-to-value ratios. Among the refinancing loans in Freddie Mac’s analysis, the median appreciation of the collateral property was a negative 5 percent over the median prior loan life of 4 years.

The higher cash-in share combined with the low rate of cash-out refinancing activity brought the net dollars of home equity converted to cash to the lowest level in 10 years. In the second quarter, $8.3 billion in home equity was cashed out during the refinance of conventional prime-credit home mortgages, down from $8.4 billion in the first quarter.

Borrowers who refinanced during the second quarter benefited from a median interest rate reduction of about nine-tenths of a percentage point. Over the first year of the refinance loan life, these borrowers will save more than $1,300 in principal and interest payments on a $200,000 loan, Freddie Mac said.