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 issued on Wednesday by 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. "It'll give consumers more confidence."

Cashout loans, in which borrowers increase their loan amounts by at least 5%, accounted for 27% of all refinanced loans in the three months to June, capping the lowest three-quarter share on record.

Cashout refinances peaked at 88% in mid-2006.

"This is a rate-and-term refinance boom as opposed to a cashout 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," Larson said. "Now, refinancing gives them breathing room."

Ron Keating, a 50-year-old 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 in a telephone interview.

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

At that rate, monthly payments for each $100,000 of a loan would be about $510, down about $40 from a year ago, when the rate was 5.2%.

Homeowners' median mortgage rate reduction was 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.

The money will contribute to a pickup in growth over the next two years, according to a forecast by economists at Moody's Economy.com.

They project consumer spending, which accounts for 70% of the economy, will grow 3% in 2011 and 4.5% in 2012.

Purchases are likely to climb 2.1% this year, the economists said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.