American home mortgage borrowers have just reached a significant economic milestone: Fewer homeowners are now cashing out equity when they refinance than at any other point in the history of modern mortgage lending, according to housing finance giant Freddie Mac.

In its latest quarterly survey of refi market conditions, Freddie Mac found that just 32 percent of refinancers pulled additional dollars out of their property via the new loan. That is down dramatically from the 60-65 percent cashout levels reached during the height of the refi boom two years ago, and well below the all-time record of 93 percent in the summer of 1989.

Freddie Mac defines a cashout refi as one in which the replacement loan is at least 5 percent larger than the homeowner's previous mortgage balance. Cashouts frequently are a sign that borrowers need liquidity to pay for something important--college tuition, consolidation of high-cost credit card debts, business investments, auto purchases, major home improvements and other large consumer expenses.

Cashouts at high levels helped prop up the U.S. economy during the recently-ended economic downturn, according to Federal Reserve Board chairman Alan Greenspan. By converting home equity into spendable cash, say Fed economists, homeowners injected hundreds of billions of dollars into the consumer marketplace and helped keep the country out of a deeper and longer recession.

Cutbacks in cashouts, according to Amy Crews Cutts, deputy chief economist for Freddie Mac, are a sign that many people have already tapped a lot of their equity via multiple refinancings. Also, she noted, home value appreciation rates have moderated in most parts of the country, leading to slower growth in equities.

Probably "the main reason" for lower cashouts, however, according to Cutts, is that most refinancers are now seeking to either lower their monthly payments for the long term, or to shorten the terms of their home mortgages from 30 to 15 years. Neither objective is served by adding on additional debt via a cashout.

"We are seeing a different kind of (home mortgage) borrower these days," said Cutts, "a more sophisticated borrower" who isn't simply loading up on debt, but who sees the home mortgage as a central, flexible tool for managing and planning household financial matters.

"They've refinanced a couple of times, they know more" about home loans than earlier generations of borrowers did, she said.

But how long could the refi boom continue, given the heavy rate reductions many borrowers already have achieved? Plenty longer if rates remain near current levels, according to Cutts. There are still vast numbers of homeowners with loans outstanding that are prime refi candidates.

For example, one-fifth of all the mortgages in Freddie Mac's vast, multi-billion dollar portfolio carry rates of 7 to 7 1/2 percent. Another 15 percent carry rates from 7 1/2 to above 9 percent. And another 25 percent have rates between 6 1/2 and 7 percent.

Many of these borrowers could cut their monthly payments still further through a rate reduction refi, says Cutts, assuming their credit histories are solid and they're willing to make the effort.