July 5th, 2019 11:30 AM by Jackie A. Graves, President
Mortgage rates have been on a roller
coaster for the last year, but now they’re sitting at the bottom of the track,
and that is boosting the number of borrowers who can benefit from a refinance
by a lot.
With the average rate on the
30-year fixed mortgage hitting a three-year low of 3.73% last week, according
to Freddie Mac, 8.2 million borrowers could refinance and lower their interest
rates by at least 75 basis points, according to Black Knight.
The average borrower could save
about $266 per month, bringing the total amount of potential savings to about
have been on a roller coaster for the last year, but now they’re sitting at the
bottom of the track, giving a major boost to the number of borrowers who can
benefit from a refinance.
rate on the 30-year fixed mortgage hit a three-year low of 3.73% last week,
according to Freddie Mac. That means 8.2 million borrowers could refinance and
lower their interest rates by at least 75 basis points, estimates Black Knight,
a mortgage software and analytics company. It’s the largest group since the end
It is also a jump
of 6.3 million eligible borrowers since last November, when rates peaked at
just over 5%. The average borrower could save about $266 per month, bringing
the total amount of potential savings to about $2.2 trillion.
borrowers tend to refinance after several years, about 1.5 million borrowers,
or 35% of those who took out their loans just last year, could benefit greatly.
No surprise that refinances, also referred to as prepayments, have jumped in
the past few months as rates began their swoon. Mortgage applications to
refinance a home loan were up a striking 92% annually last week, according to
the Mortgage Bankers Association.
loans originated last year are leading the way, up 300% according to Black
observed increases across nearly every investor type, product type, credit
score bucket and vintage, some changes stand out,” said Ben Graboske, president
of Black Knight Data & Analytics. “For instance, prepayments among
fixed-rate loans have hewed close to the overall market average, rising by more
than two times over the past four months. However, ARM [adjustable-rate
mortgage] prepayment rates have now jumped to their highest level since 2007 as
borrowers have sought to shed the uncertainty of their adjustable-rate products
for the security of a low, fixed interest rate over the long haul.”
lower monthly payments, but it can also provide easy money for homeowners with
high levels of home equity. Given the steep rise in home values over the past
three years, homeowners currently hold an aggregate $5.98 trillion in tappable
equity. Tappable equity is generally considered the value of the home beyond
the 20% retained equity most lenders require.
Of the 44
million borrowers who currently have at least 20% equity in their homes, the
average amount they can tap is $136,000, according to Black Knight.
equity had been growing quickly, it’s now slowing as home prices moderate. Last
summer, there was $6.06 trillion in total. Tappable equity continues to grow in
47 states and 94 of the 100 largest markets, but it’s dropping in some major cities,
like San Jose, San Francisco, Seattle, Houston, Portland, Oregon, and Baton
conservative borrowers have not been taking advantage of their home equity.
Just $54 billion was withdrawn in the first quarter of this year, which was the
lowest volume in four years. Less than 1% of available equity was withdrawn.
During the last
housing boom, in the early 2000's, borrowers were using their homes like ATM’s.
That resulted in negative equity positions when home values crashed, leading to
the worst foreclosure crisis in history. Borrowers today appear to be much more
reluctant to leave themselves without a cushion, remembering that home values
can go down as easily as they can go up.
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