Low rates spur rush to refinance
With 30-year loans under 3%, homeowners motivated to act
LOS ANGELES — With the 30-year mortgage rate falling last week below 3 percent for the first time in a half-century, 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 four-month stretch in 2019, according to real estate data company CoreLogic. And cash-out refinancing, when homeowners withdraw equity from their home’s value, typically to pay down higher-interest debt or cover remodeling expenses, rose more than 70 percent 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 would-be buyers and sellers.
“The refi share is through the roof,” said Frank Nothaft, chief economist at 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 percent of home loans during that period, the firm said. Of those, cash-out refinancings made up about 15 percent 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 10-year 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 30-year fixedrate mortgage fell last week to 2.98 percent, mortgage buyer Freddie Mac said Thursday. It’s the first time in 50 years the average rate on the 30-year loan dropped below 3 percent. The rate averaged 3.81 percent a year ago.
More recently, the recession caused by widespread business shutdowns to slow the spread of the coronavirus 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 10-year Treasury note has steadily declined. It’s now running around 0.6 percent after starting the year at about 1.9 percent.
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.