With interest rates already hovering near historic lows — and then getting kicked down a notch by the “Brexit” surprise — another chance for homeowners to refinance a mortgage at near-bottom rates appears to be under way.
Even before last week’s vote by the United Kingdom to leave the European Union sent rates about one-eighth of a percentage point lower, the Mortgage Bankers Association reported its refinance index was up 7 percent from the previous week, with refinancings accounting for almost 58 percent of all mortgage applications.
The British situation, while awful news so far for the stock market, is an opportunity — one of many since the Great Recession — for mortgage borrowers to lower their monthly payments, reduce the term of the mortgage or take out some cash.
Lenders advertising rates of 3.50 percent on a 30-year fixed rate mortgage weren’t hard to find Monday, and some offered still-lower rates for shorter-term mortgages.
But rates change often, and no one can say for certain how long the low rates will be around.
“It is very difficult to know how long this downdraft will last,” Mark Hamrick, senior economic analyst for the personal finance firm Bankrate.com, said Monday. “If someone is on the proverbial fence about a refi, I’d take a sure thing now over trying to anticipate the future direction of rates, which could rebound.”
Brian Wickert, president of Accunet Mortgage in Butler, Wisconsin, said his company saw about a 50 percent jump in refinance loan application volume the week of June 12, then a slowdown last week as it looked like the British wouldn’t opt to leave the EU. But the unanticipated vote by Britain sent the rates down a tick to levels from 2012’s record territory, he said.
Wickert said he expected “another spike” in refinance applications this week as long as rates stay low.
Worries about the global economy tend to send foreign investors to the relative safety of U.S. Treasuries. The higher demand pushes up prices for government bonds, causing their yields, which have an effect on mortgage rates, to drop. And with the British situation disrupting the global landscape, there is no shortage of economic nervousness.
“With the recent downdraft in rates, there are certainly some homeowners who will jump right in to take advantage of these compelling rates,” said Hamrick. “We’ve recently seen the lowest mortgage rates in three years, and then the surprising Brexit vote brought many investors into the bond market, taking yields or rates down.”
New Berlin, Wicsonsin-based Landmark Credit Union was among lenders Monday offering a 3.50 percent (or 3.537 percent annual percentage rate) with no points on a 30-year fixed rate mortgage. Points are fees paid by some borrowers to get a lower rate.
“Our refinance business has been strong all year, and it’s accounted for about 45 percent of our mortgage business,” said Jay Magulski, Landmark’s chief executive. “And so, might this likely now lead to even further strengthening of our refinance business? It certainly may.”
Economist Brian Jacobsen said refinancing is being driven by “people getting cash out of their homes and improving their monthly cash flow situation.” In a cash-out refinance, a borrower takes advantage of equity built up in the property to refinance a mortgage for more than the amount owed, taking the difference in cash.
“Property values have been going up while interest rates have been falling,” said Jacobsen, who is chief portfolio strategist for Wells Fargo Funds Management in Menomonee Falls, Wisconsin. “Not only are people deciding to take the plunge at a lower rate, a growing percentage are doing cash-out refinancings.”
Bankrate‘s Hamrick said while rates may head upward again by the end of the year, “lower for longer has become the status quo for interest rates.”
“Of course, we’ll have a better idea about this as a number of events are resolved, including whether the recent soft patch in hiring is something more sustained and serious and whether there’s longer-lasting negative financial/economic reaction to the Brexit vote,” he said.
