Home >> Daily Dose >> Refis May Drop As Rates Rise
Print This Post Print This Post

Refis May Drop As Rates Rise

refinance-appMortgage rates are still very low in general. But not all mortgages have those rates in the mid-3s.

In fact, according to Molly Boesel, senior economist at CoreLogic, about 38 percent of active loans and 28 percent of unpaid principal balances (UPBs), as of February, carried mortgage interest rates higher than 4.50 percent. This, teamed with the expected rise in rates, has Boesel wondering in the latest CoreLogic MarketPulse report what will happen with refinancing as the year ticks on.

“Because a refinance isn’t free, a simple rule of thumb is to add 100 basis points to the current market mortgage rate as the rate at which borrowers would have an incentive to refinance,” she wrote.

Following that math, Freddie Mac’s May near-historic low average of 3.57 percent on 30-year mortgages rate means that the typical borrower “would need to hold a mortgage rate of 4.57 percent or higher to make refinancing a money-saving option,” she wrote.

Boesel also calculated that if mortgage rates were to increase by 50 basis points this year, those borrowers in the 4.50-and-higher range‒‒about 5.5 million borrowers‒‒would generally find refinancing unappealing.

“If mortgage rates rise as predicted, we will certainly see refinancing volumes fall in 2016,” Boesel wrote.

On the upside, a drop in refinancing does not automatically mean that borrowers would never take out new loans.

“Even though at least 62 percent of borrowers most likely don’t want to refinance out of their low mortgage rates,” Boesel wrote, “they still might want to tap into their equity to pay for remodeling, education expenses, or debt consolidation.”

In other words, instead of cashing out to refinance, homeowners turn to more straightforward home equity loans. According to a February 2016 white paper by CoreLogic, in recent years, home equity loans have been making a comeback.

6-27 CoreLogic graph

About Author: Scott Morgan

Scott Morgan is a multi-award-winning journalist and editor based out of Texas. During his 11 years as a newspaper journalist, he wrote more than 4,000 published pieces. He's been recognized for his work since 2001, and his creative writing continues to win acclaim from readers and fellow writers alike. He is also a creative writing teacher and the author of several books, from short fiction to written works about writing.
x

Check Also

Mortgage Market Health Measured

Prepayment activity hit its highest levels since 2016 while delinquencies recovered from their June spike, according to the First Look at July 2019 mortgage data from Black Knight.

GET THE NEWS YOU NEED, WHEN YOU NEED IT.

With daily content from MReport, you’ll never miss another important headline in originations, lending, or servicing. Subscribe to MDaily to begin receiving a complimentary daily email containing the top mortgage news and market information.