Homeowners rush to refinance as 30year rate falls below 3%

LOS ANGELES — With the 30year mortgage rate falling this week below 3% for the first time in a halfcentury, more U.S. homeowners are likely to seize the chance to refinance their home loans.

Americans refinanced nearly 2 million home loans from January through April, more than double the same fourmonth stretch in 2019, according to real estate data company CoreLogic. And “cashout” refinancing, when homeowners withdraw equity from their home’s value, typically to pay down higherinterest debt or cover remodeling expenses, rose more than 70% from a year earlier.

Mortgage refinancings are outpacing home purchase loans this year, in part because the labor market fallout and economic uncertainty due to the coronavirus pandemic has put off some wouldbe buyers and sellers.

“The refi share is through the roof,” said Frank Nothaft, chief economist at real estate data firm CoreLogic. “It’s way up from a year ago and it’s accounting for the bulk of lending.”

Through the first four months of the year, about 1.9 million mortgages with a dollar value of $576.09 billion were refinanced, according to CoreLogic. They accounted for 64% of home loans during that period, the firm said. Of those, cashout refinancings made up about 15% of all loans.

Refinancing can lower monthly payments and in some cases allow homeowners to tap additional cash from the equity in their home.

Mortgage rates have been falling for almost two years, in part due to the sharp pullback in the 10year Treasury yield, which is a benchmark for interest rates on consumer loans, including mortgages. For much of last year, investor worries about a costly trade dispute between the U.S. and China, and Britain’s decision to leave the European Union, drove up demand for bonds, pushing yields lower, and mortgage rates followed suit.

The average rate on the key 30year fixedrate mortgage fell this week to 2.98%, mortgage buyer Freddie Mac said Thursday. It’s the first time in 50 years that the average rate on the 30year loan has dropped below 3%. The rate averaged 3.81% a year ago.

More recently, a deep recession caused by widespread business shutdowns to slow the spread of the coronavirus pandemic has led nervous investors to shift money into U.S. government bonds. As demand for bonds rises, their yield falls.

As a result, the yield on the 10year Treasury note has steadily declined. It’s now running around 0.6% after starting the year at about 1.9%.

While rates have been historically low for years, every decline makes refinancing appealing to more people. Homeowners who plan to stay put can benefit most. Refinancing typically costs several thousand dollars in closing costs and other fees. But over time, saving a hundred or few hundred a month in monthly mortgage bills adds up.

“These are incredibly low rates, and if you can lock them in with a fixedrate mortgage, that’s locking in potentially a couple of hundred dollars of savings every month,” said Jeff Tucker, economist at Zillow.

United Wholesale Mortgage, the secondbiggest U.S. mortgage lender behind Quicken Loans, has been making 30year, fixedrate home loans as low as 2.5%, said Alex Elezaj, the company’s chief strategy officer.

The record low rates are also making homes more affordable to potential buyers, who appear to be returning to the market. Pending home sales jumped a record 44.3% in May as a comeback appears to be building in the sector, according to the National Association of Realtors.