Zillow on Friday reported a huge increase in the number of mortgage refinance requests the company has received as the U.S. mortgage market begins to feel the effects of the Brexit vote from two weeks ago.
The aftermath of Brexit in the U.S. has been mortgage rates hovering just above their historic low level set nearly four years ago, which prompted the spike in refinance requests, according to Zillow. Refi requests this week were 132 percent higher than last week and 107.6 percent higher than they were two weeks ago before Brexit vote, while purchase mortgage requests are 24 percent higher than last week and 13.3 percent higher than two weeks ago, according to Zillow. The average 30-year fixed-rate mortgage has dropped by 19 basis points since the Brexit vote down to 3.27 percent.
“Compared to everything else going on in the world, U.S. mortgage-backed securities now seem like a relatively safe bet for global investors, and this flight to safety has created savings opportunities for U.S. homeowners and those who want to buy,” said Erin Lantz, VP of Mortgages for Zillow Group. “The drop in rates following the vote sparked an influx of refinance activity, and may also be encouraging home shoppers to move quickly and lock in a rate. That said, while mortgage rates are a key factor when buying a home, it's important to remember that affordability is rarely determined solely on the rate you can get. The harsh reality is that if you couldn't afford a house a few weeks ago, you likely still can't.”
For example, a buyer who purchased a home for $200,000 at the rate of 3.46 percent pre-Brexit and pays 20 percent down on a 30-year FRM, the monthly payment would be $715. Refinancing at today’s rate of 3.27 percent would push the payment down to $697, about $18 lower. While that monthly savings may be minimal, the fallout from Brexit may cause the Fed to delay raising the federal funds target rate, which will keep mortgage interest rates lower and give borrowers more opportunity to refinance.
“While mortgage refinancing has maintained strong momentum for the better part of the past decade, the combination of historically low mortgage rates and strong home value appreciation are creating new opportunities for millions of homeowners who previously did not have enough equity to qualify for a refinance,” Zillow reported.