A Mini Boom In Mortgage Refinancing Activity Expected In The US
05 Mar 2020
Approx Reading time: 5 minutes
- The Federal Reserve has cut down key rates that have driven yields down to new lows.
- As a consequence of rate cuts, mortgage rates have fallen, making refinancing a very attractive option for many homeowners.
- However, experts believe refinancing may still not result in any actual savings due to closing costs that originate from refinancing activity.
The ongoing Coronavirus scare has already wreaked havoc on global stock exchange markets, but lower mortgage rates have pushed homeowners to drive up mortgage refinancing activities.
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The number of refinancing applications for mortgage loans increased by a whopping 26% in the previous week compared to the week prior to it, as per data reported by the Mortgage Bankers Association. On a yearly comparison, the volume of mortgage refinancing applications has more than tripled, increasing by a staggering 224%.
According to economists, those homeowners who acquired mortgage loans during the later part of 2018 found a great opportunity to save on mortgage loan costs by an entire percentage point. As many as 80% of all households had the option to reduce the costs they paid on mortgage debt by half percentage point.
Experts have now predicted that another surge in refinancing activity is likely to happen in the coming weeks after the Federal Reserve cut down an important short-term rate as an emergency measure to sustain economic growth in the country.
The expected mini-boom in refinancing activity is coming as a consequence of growing investor worries about the stock exchange performance that has been marred by the devastating impact of coronavirus on global economies. This is driving investment into bonds that are less risky, which has driven yields derived on the 10-year Treasury to new lows. Since mortgage rates have historically shared a direct correlation with yields, mortgage rates have also fallen.
The rate reported by Freddie Mac on a 30-year mortgage loan has fallen to 3.45%, while the 15-year mortgage rate is currently at its lowest point since November 2016, having fallen down to 2.95%. The 15-year home loan is also the most popular option among borrowers who are opting for refinancing. Economists believe that mostly those who had locked down mortgage rates between 4%-4.5% in the past 10 years are rushing for the refinancing option at this time.
Now, due to developments of this week, more homeowners are expected to file for refinancing their mortgage. This week, the 10-year Treasury yield is likely to fall even further, having already declined below 1% for the first time in history on Tuesday.
The federal funds rate was also cut by half a percentage point on Tuesday as a move by the Federal Reserve, which has an impact on loans given to short-term consumers and businesses. According to experts, those with an Adjustable-Rate Mortgage loan are likely to benefit from these cuts.
Although the move by the Feds is not going to have a direct impact on mortgage rates, it is definitely going to create a low-interest environment that should prompt increase consumption and, as a result, sustain the economic momentum. Experts believe interest rates are likely to fall even further this year.
However, financial advisors are not recommending those making a move in the next couple of months to refinance. Also, borrowers need to consider the closing costs that come with refinancing, which can be anywhere between 3%-6% of the total mortgage loan value. Hence, borrowers need to evaluate whether refinancing would actually result in any savings for them in the long-run.
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