Falling Interest Rates Trigger a Mortgage Refinance Boom
August 11, 2011According to the latest report from the federally-run mortgage company, Freddie Mac, fixed mortgage rates fell from 4.39 percent to 4.32 percent this week, while the average rate for 15-year fixed mortgages dipped from 3.54 percent to 3.50 percent.
Typically, low rates lead to a flurry of activity in the housing market; however, sales dipped for the third straight month, settling at a seasonal adjustment of 4.77 million–the fewest in 14 years.
Tight lending standards and expensive up-front costs have prevented many from taking advantage of ideal buying conditions; however, according to the Mortgage Bankers Association, the historically low rates have led to a mortgage refinance boom, with applications increasing almost 22 percent over a one week period.
The group says that refinancing accounted for more than 75 percent of all reported mortgage activity, thanks mostly to falling rates on 15-year mortgages, which tend to be the most popular refinancing option.
Unfortunately, declining home values have exhausted equity in many properties, making it difficult for some homeowners to take advantage of the affordable rates.
Still, for those living in stronger markets with relatively high property values, now is a perfect time to refinance; and, although this type of borrowing isn’t likely to contribute much to the economic recovery, it can save opportunistic homeowners tens of thousands of dollars over the life of their loans.
