Home loan refinancing increases with mortgage rates at historic lows


LOS ANGELES (AP) – US homeowners are taking advantage of the lowest average mortgage rates on record to refinance their mortgages.

Americans refinanced nearly 2 million home loans from January through April, more than double the same four-month period in 2019, according to real estate data company CoreLogic. And “cash-out” refinancing, when homeowners take equity out of their homes, typically to pay off higher-interest debt or cover renovation expenses, has increased by over 70% from the previous year. ‘last year.

Mortgage refinances are outpacing home purchase loans this year, in part because labor market fallout and economic uncertainty from the coronavirus pandemic have put off some potential buyers and sellers.

“The refi share has exploded,” said Frank Nothaft, chief economist at real estate data company CoreLogic. “This is much more than a year ago and this represents the bulk of loans. “

(What you should ask before refinancing your mortgage.)

In the first four months of the year, around 1.9 million mortgages worth $ 576.09 billion were refinanced, according to CoreLogic. They accounted for 64% of home loans during that period, the company said. Of these, cash refinances accounted for about 15% of all loans.

Refinancing can reduce monthly payments and, in some cases, allow homeowners to draw additional cash from their home equity.

Mortgage rates have been falling for almost two years, in part due to the sharp drop in the 10-year Treasury yield, which is a benchmark for interest rates on consumer loans, including mortgages. . For much of the past year, investor concerns over a costly U.S.-China trade dispute and Britain’s decision to leave the European Union drove up demand for bonds, lowering yields, and mortgage rates followed suit.

The average rate on the main 30-year fixed-rate mortgage fell this week to 2.98%, mortgage buyer Freddie Mac said Thursday. This is the first time in 50 years that the average 30-year loan rate has dropped below 3%. The rate was on average 3.81 percent a year ago.

More recently, a deep recession caused by widespread business closings to slow the spread of the coronavirus pandemic has led nervous investors to shift money into U.S. government bonds. As demand for bonds increases, their yield decreases.

As a result, the yield on the 10-year Treasury bill has steadily declined. It is now hovering around 0.6 percent after starting the year at around 1.9 percent.

While rates have been historically low for years, each drop makes refinancing attractive to more people. Homeowners who plan to stay put can benefit the most. Refinancing typically costs several thousand dollars in closing costs and other fees. But over time, saving a hundred or a few hundred a month in monthly mortgage bills adds up.

“These are incredibly low rates, and if you can lock them in with a fixed rate mortgage, it potentially saves you a few hundred dollars each month,” said Jeff Tucker, economist at Zillow.

United Wholesale Mortgage, America’s second-largest mortgage lender behind Quicken Loans, has provided 30-year fixed-rate home loans as low as 2.5%, said Alex Elezaj, the company’s chief strategy officer.

“Our business continues to be very strong and we expect the next 12-18 months to be the best months in mortgage history,” he said.

Record rates also make homes more affordable to potential buyers, who appear to be returning to the market. Pending home sales jumped a record 44.3% in May, according to the National Association of Realtors, as a comeback appears to be looming in the area.

The mortgage refinancing trend shows no signs of slowing down. The number of mortgage applications last week increased 61.1% from a year earlier, as refinancings more than doubled, according to the Mortgage Bankers Association.

Economists predict that the refinancing frenzy will continue because about half of all mortgages in the United States have an interest rate of 4% or more, well above current rates, Nothaft said.

Another reason is that the Federal Reserve has signaled that it will continue to buy billions of dollars in treasury bills and mortgage-backed bonds to stabilize financial markets during the economic fallout from the pandemic.

“When you have an investor with generous pockets like the Fed buying mortgage-backed securities, it keeps the 10-year Treasury yield low,” Nothaft said. “So over the next 18 months I wouldn’t be surprised if we saw 30-year fixed loans stay around 3%.”

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