Slowing refinance activity may be a sign of rate burnout

The Mortgage Bankers Association announced that refinancing activity slowed sharply in December. Is this a sign of interest rate burnout, with mortgage rates having been low for so long now that anyone who could benefit from refinancing has already done so?

Mortgage rates, after all, spent virtually all of 2012 below 4 percent, ending the year at 3.35 percent. Consumers have more information sources about mortgages than ever, as well as tools like mortgage calculators to help them instantly assess their refinancing opportunities. However, while the bulk of refinancings may have already occurred, there are four reasons why there might continue to be a steady flow of new mortgage refinance applications in 2013:

1. Rising home prices. As home prices continue to recover in most U.S. markets, more and more mortgage loans are emerging from under water -- i.e., the condition where the loan balance is greater than the value of the property. As prices rise to levels above their loan balances, the owners of those homes may find themselves newly eligible to refinance.
2. Accumulating principal payments. Besides rising home prices, the passage of time also helps loans get above water, simply because each monthly payment steadily chips away at the remaining loan balance.
3. Improved credit history. For some home owners, the problem hasn't been property values so much as credit histories which took a hit during the Great Recession. A sustained effort to improve credit scores can help home owners become eligible for refinancing.
4. Falling consumer prices. The Bureau of Labor Statistics announced that the Consumer Price Index actually declined in November, which raises an intriguing possibility: If this is the start of a deflationary trend, it could create room for mortgage rates to fall yet again in 2013, creating a new wave of refinancing opportunities.

Whether you've been precluded from refinancing due to credit or home-value issues, or simply haven't seen a big enough drop in rates, you still shouldn't give up on the possibility of refinancing in the future. It can be helpful to use a refinance calculator to set a target for the rate level at which it would make sense for you to refinance, so you could be ready to act if opportunity knocks.

This entry was posted on January 4, 2013 15:37 and is filed under Mortgage Refinance . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response.