With Mortgage Rates Dropping, Refinancing Opportunities are Climbing

Good news for lenders aiming to capitalize on the market and homeowners trying to save some money! Thanks to stock market volatility and a weakening in Asian and European financial markets, the average 30-year fixed rate mortgage has plummeted to a 14-month low, just a sliver below 4 percent, settling in at 3.97 percent.

It all started when rates slowly began falling in late September 2014 as investors became nervous about economic stability. In response, they started transferring their money into safe U.S. bonds. The demand for long-term bonds rose causing yields on long term investments to fall, and in turn, interest rates fell. The change in the stock market took an even more dramatic turn this past Wednesday when investors reacted to an unexpectedly poor performance from U.S. retail sales and poorly performing economies in Asia and Europe, causing a substantial drop in stock prices.

For many homeowners and lenders alike, the dip below 4 percent represented a crossing in a psychological barrier. As the public saw rates begin to plummet this past Wednesday, bells went off, emails were sent, and phones started ringing as lenders began reaching out to homeowners in hopes of closing new refinances. Many mortgage lending companies are reporting an increase of more than double in their loan applications since Wednesday. These companies noted that the vast majority of those applications came from people looking to refinance their homes.

When rates fall into this range, the general public realizes they have a great opportunity to save quite a bit of money by refinancing. Borrowers feel comfortable refinancing if they can save at least 1 percentage point on their current mortgage interest rate, even refinancing when they can save half a percentage point if times are tough. To put things into perspective, mortgage rates two weeks ago were at 4.12 percent and last year rates were sitting at 4.28 percent according to mortgage giant Freddie Mac. 

With over 10 percent of current borrowers sitting with a 30-year fixed-rate mortgage that is above 5 percent, there is a massive opportunity for millions of borrowers, and lenders, to benefit from a change in their current rates.

The question on a lot of homeowners and lender’s minds is: how long will this drop in mortgage rates last and will it continue to fall in the near future? At the start of 2014, almost every economist and industry analyst expected mortgages rates to go nowhere but up over the course of the year. With experts being very wrong in their predictions and a volatile market currently running the economy, it is too soon to tell if the lower rates will be maintained and if the increase in refinancing activity is sustainable.

With that said, a good opportunity for homeowners is a good opportunity for lenders.  Consider communications to your borrowers on refi opportunities and hit those open houses.  This is going to be a good fall for originators and investors alike.