Slowing refinance activity may be a sign of rate burnout

January 04th, 2013

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.

Posted By :

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

Housing conditions shift in favor of refinancing

September 12th, 2012

With all the attention given to low mortgage rates in the past couple years, it can be easy to forget about the other key variable in home affordability -- h...  Read More

Homeowners search for solutions after write-down program is scrapped.

August 20th, 2012

The U.S. government wants Fannie Mae and Freddie Mac to write down mortgages to help troubled borrowers and spur the housing market to recovery. It is estima...  Read More

Should you relocate if you still have a mortgage?

August 15th, 2012

Trying to find employment in this economy can be challenging. Moving to a new city or state could open up new job possibilities. But what if you have a house...  Read More

When rates change rapidly, reach for a refinancing calculator

July 26th, 2012

Another new low in mortgage rates is creating opportunities for home buyers and homeowners alike. Today's rapidly changing rates have also made mortgage calc...  Read More

0 Responses to "Slowing refinance activity may be a sign of rate burnout"

No Comments

Leave a Comment