It’s no secret that interest rates are in flux and will likely rise in 2017 as we transition with the new administration. What will be the implications of rising interest rates for lenders and their customers? HouseCanary reviewed the mortgage market to find out, and the results are significant. The total U.S. mortgage market is valued at nearly $14 trillion dollars, and $1 trillion of those loans are potential refinance opportunities.* It’s clear that there are real dollars at stake—$36 billion in annual savings to be exact, and 5.5 million households will benefit from refi opportunities.
The news is good for lenders and homeowners alike. When we take a closer look, the data tells an urgent story. Since the presidential election, interest rates have risen approximately 60 basis points, resulting in a loss of a half trillion dollars in refi opportunities. If interest rates rise by 40 additional basis points the result is a total loss of over $840B in refinance opportunity. Fortunately, the magnitude of the mortgage market means there is still substantial opportunity for lenders with knowledge of their local market to participate in the next refinancing wave.
As the 10 year anniversary of the market crash in 2007 approaches, we examined the rebound in values in the nation’s top 24 MSAs. Over the past five years the data showed a steep curve of home value appreciation, ranging from 54 percent to 94 percent. It’s safe to say many of the borrowers in these MSAs have likely grown their equity through significant home value appreciation, timely mortgage payments, both of which positively impacted their LTV, making them ideal candidates for a refi.
Let’s take a look at a few yet unrealized refi opportunities in a small, medium, and large market. This table below shows three markets and the potential refi opportunity for neighborhood banks, at the current interest rate.
A complete list of refinance opportunities, sorted by location, loan amount and LTV is available at HouseCanary.com/Refi.
Source: HouseCanary*
*HouseCanary has computed the refi opportunity based on these assumptions: (1) minimum loan amount of $50,000, (2) borrower to save a minimum of $2,000 per year, (3) < 80 percent LTV, (4) not in default, (5) prospect to save on the interest expense over the life of the loan, compared to what they would have paid in interest with original financing.