Charlotte County Florida Weekly

Rates Up, Refis Down

Fewer people refinance homes as interest rates pick up



 

 

THE AMOUNT OF HOME REFInance loans in the U.S. is projected to be less than half what it was just two years ago because interest rates have ticked back up past the all-time lows they reached after the Great Recession, the Mortgage Bankers Association reports.

In 2016, lenders approved about $1 trillion worth of home refinancing loans in the U.S. That dropped by 40 percent in 2017 to $600 billion and is expected to fall to $460 billion by the end of this year. The forecast is based on Freddie Mac’s 30-year fixed rate for home purchases.

“Typically, people are looking for a decrease in their rate from a quarter of a point or a half a point to make it worth the cost of refinancing,” said Mike Fratantoni, chief economist with the Washington D.C.-based industry group. “And now we’re in a situation where about 80 percent of homeowners no longer have that incentive.”

Fewer people are refinancing now primarily because they already did or they bought their home during that period of unprecedented low rates. But while refinance loans as a whole have gone down, new or “purchase money” mortgages have for some ticked up.

 

 

“The majority of people that have owned their homes for a while already refinanced a few years ago when the rates were really low,” said Kim Nyberg, vice president of professional and executive banking with Edison National Bank in Fort Myers.

She estimated that Edison National’s loan originations are roughly 80 percent new or purchase money and 20 percent refinance loans now, while at the height of refinancing, when interest rates were at their lowest, that equation was a closer to 50/50.

In the U.S., MBA data shows a similar story: refinance loans as a total share of home loans reached 45 percent in the second quarter of 2016 and fell to 26 percent in the second quarter of 2018.

Marisa McDougall, president and owner of Naples-based Southwest Florida Mortgage Solutions, is seeing the same trend in Collier County.

NYBERG

NYBERG

“Right now, it’s about an 80 percent purchase market and the reason being is rates have gone up, so people are not refinancing unless they need to pull cash out from the equity of their property,” she said. “Or maybe they want to buy another property, and they want to pull the cash out and purchase that property on a cash transaction.”

Lenders knew interest rates would have to go back up eventually. Part of the reason the refinance loan market shrunk so much is not just that rates were at all-time lows, but that they remained that way for so long.

The average interest rate for a 30-year fixed-rate mortgage fell from more than 6 percent in 2007 to 4.45 percent in 2011. It reached an all-time annual average low of 3.65 percent in 2016. In July the rate rose to 4.53 percent, Freddie Mac reports.

“Even really back as far as 2011 we saw rates dipping below 5 percent and then they just kept falling,” said Greg McBride, West Palm Beach-based chief financial analyst for Bankrate.com, which provides financial analysis and comparison services. “A good part of the last six years was below 4 percent. What happened was anyone who bought a home during that time got a really great rate, certainly lower than the one that’s out here today, and anybody who had a higher rate was able to refinance as rates dropped.”

MCBRIDE

MCBRIDE

Ms. McDougall pointed out that while the refinance business has started to lag, those higher rates may also signal a healthier economy.

“Because the economy is doing so well, rates have gone up,” she said. “It was predicted that would happen as the economy recovered. My philosophy is with the new (presidential) administration it has begun to recover and rates have gone up. So we’re definitely in a purchase market right now.”

Mortgage Bankers Association chief economist Mr. Fratantoni reflected that opinion.

“The increase in mortgage and interest rates more broadly is reflecting the strong economic growth we’re experiencing so that’s positive,” he said, with the Federal Reserve increasing rates because of a stronger job market and lower unemployment.

RITCHHART

RITCHHART

Interest rates are still historically low even though they’re rising, he said, which makes some types of refinancing attractive.

“In our area, if someone’s refinancing it’s usually one of two reasons,” said Connie Ritchhart, senior vice president of residential lending with Charlotte State Bank & Trust in Charlotte County. “They have an adjustable-rate (loan). Or they want to do a bill consolidation.

“Most people, they refinanced when the rates all went down, so now the rates have increased so there’s no reason for them to refinance unless they’re doing it for a specific reason.”

Adjustable-rate loans include home equity lines of credit that may be combined with a mortgage to achieve a lower interest rate.

“I’m still doing my share of refinances, because people have a home equity line of credit whose rates are increasing,” said Jeff Brown, a Fort Myers-based mortgage loan originator with Synovus Mortgage Corporation. “They want to take that home equity line of credit, combine it with their mortgage, and have one fixed rate.”

BROWN

BROWN

People may also look at refinancing for other reasons besides just locking in a lower interest rate, as well, such as shortening the term of their loan or because they used to have bad credit but their situation has improved.

But refinancing a mortgage loan comes with closing costs for the homeowner as well. It’s a personal calculation.

“I think the biggest take-away when considering a refinance is to have a mortgage loan originator analyze the numbers with a client individually to determine if a refinance is best,” Mr. Brown said.

For Darren Lynch, a Fort Myers-based loan officer with First Florida Financial Group and president of the Southwest Chapter of the Florida Association of Mortgage Professionals, debt consolidation is the top reason why clients refinance. That’s become more popular, he said, as home prices also continue to rise and people have more equity in their home. They are able to combine other loans with a mortgage.

“People will also do cars and student loans, you name it,” he said. “It just boils down to how much money you’re saving per month.”

Debt consolidation and cash-out refinancing, which are typically also popular when interest rates are relatively low, may bid well for retailers, Bankrate’s chief financial analyst Mr. McBride pointed out.

“Home Depot and Lowe’s love that,” he said. “If people are paying off other debt they’re freeing up room in the household budget so they’ve got more discretionary income.” ¦

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