Record numbers of refinancing homeowners have stopped using their home equity as an ATM machine for withdrawals and instead are making more deposits.

In the last quarter of 2011, a record 85 percent of homeowners who refinanced their first mortgage maintained the loan amount or lowered their principal balance by adding cash to the deal at closing, a 26-year high, according to what is now dubiously called Freddie Mac's "Cash-Out Refinance Analyses."

It's a trend that reflects faith in the value of the home as an investment. When home values rebound, those who've maintained or improved their home value will be ahead of the game and enjoy exponential returns on home equity growth.

Perhaps more aptly dubbed a "cash-in" refinancing study, Freddie Mac's report found a whopping 49 percent of refinancing homeowners actually reduced their principal balance, while 37 percent retained the same loan amount.

In addition to the long term benefits, many of those homeowners are enjoying some immediate financial breathing room.

"The typical borrower who refinanced reduced their interest rate by about 1.4 percentage points. On a $200,000 loan, that translates into saving $2,700 in interest during the next 12 months," or about $225 a month, said Frank Nothaft, Freddie Mac vice president and chief economist.

With home purchase mortgage rates and refinance rates at record levels, more and more homeowners are being prompted to take a hard look at "cashing-in" on their home equity, instead of cashing-out.

Refinanced mortgages comprised 80 percent of all home loans the week ending Feb. 1, according to the Mortgage Bankers Association (MBA).

Homeowners are also protecting their refinanced investment by locking in their savings with fixed rate mortgages (FRMs) instead of riskier adjustable rate mortgages (ARMs). FRMs comprised more than 94 percent of the loans made for the week ending Feb. 1, according to MBA.

"Savvy homeowners are taking advantage of some of the lowest fixed rates in more than 60 years to lock in interest savings," said Nothaft.

The average interest rate on 30-year fixed rate mortgages (FRMs) fell to a record low of 3.87 percent, for the week ending Feb. 2, according to Freddie Mac.

The trend is a decided shift from the days when home equity became the "psychological equivalent of gold," and experts said one of the best way to use home equity was to move it into capital investments that provided an equal or greater return than home equity gain. Home improvements, education for the kids, new business finances, a second home and other financial moves can still be a good use for home equity - if you have it.

Smart homeowners with little, if any equity -- including "underwater" homeowners with negative equity -- apparently are investing in their own home as an investment that's just as, well, capital.

Freddie Mac said among the refinanced loans it analyzed, the median value change of the collateral property was a negative 4 percent over the median prior loan life of almost four years.

In comparison, the Freddie Mac House Price Index shows about a 23 percent decline in its U.S. series between September 2007 and September 2011.

That generally means borrowers who refinanced in the fourth quarter owned homes that had held their value better than the average home.

Published: February 9, 2012

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A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.