Fewer U.S. homeowners were taking cash out of their houses when they refinanced mortgages in the second quarter, contenting themselves with lower interest rates and mortgage payments, according to Freddie Mac.

The mortgage agency said recently that 39 percent of loans it owns that were refinanced in the second quarter resulted in new mortgages with a balance at least 5 percent higher than the original mortgage. In the first quarter, 42 percent of refinancing resulted in loans 5 percent or more above the original figure. (The 5 percent level is what mortgage lenders consider the threshold for a loan to be considered a cash-out refinance.)

Homeowners got $20 billion in equity through cash-out refinancing in the quarter, down from $23 billion in the first quarter. Freddie Mac expects cash-out refis to pump $71 billion into the economy in 2004, about half the $140 billion boost in 2003.

U.S homeowners overall hold about $8 trillion in equity. "When we see regular rate-and-term refinancings increase, the share of cash-out refis drops," said Amy Crews Cutts, deputy chief economist for Freddie Mac. "Most homeowners are happy to reduce their monthly payments and don't feel a need to withdraw equity."

Instead of taking equity out in a refinancing, many are finding that low interest rates make home-equity conversion an affordable option for financing other investments.

"Over the second quarter, homeowners who refinanced their mortgages lowered their rate on average 0.97 percentage points. On an average loan size of $150,000, that lower rate translates into a payment about $94 a month lower -- a savings of more than $1,100 annually," Cutts said.

Refinancing accounted for 40 percent of mortgage activity in the second quarter. That is well off the record pace of nearly 80 percent in the spring and summer of 2003, when mortgage rates fell near 5 percent.

"We expect to see a further reduction in the overall refi share through the second half of 2004 to between 30 percent and 35 percent," Cutts pointed out. "Cash-out refis will make up a larger share of those third- and fourth-quarter refinancings because most homeowners have already refinanced into very low-rate mortgages over the past year."