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Low interest rates contribute to increase in refinance loans

By: 20 August 2011 7 Comments

The national Mortgage Bankers Association reports that the demand for purchase mortgages has remained little changed throughout the summer, but refinance mortgages are a different breed of cat.

Over the past few months, the demand for refinance mortgages has grown. A lot of it has to do with interest rates. Those dropped to the lowest point this year in the first week of August – the rate on a 30-year, fixed mortgage averaged 4.37 percent on Aug 5 while the rate on a 15-year mortgage was 3.52 percent.

Those rates, the Mortgage Bankers Association states, caused a comparative flood of refinance applications at the first of August. Refinance applications, for the week ended Aug. 5, jumped 30 percent from the previous week and the Association has reported a steady gain in refinance applications this summer.

While week-to-week changes typically tell us little, the Aug. 5 jump was significant in terms of sheer magnitude. During that week, refinance applications made up 75.6 percent of all mortgage activity – up from 70.1 percent the previous week. Stop for a minute and think about that – refinancing made up three-fourths of mortgage activity that week and a trend has developed over the past few months in which the number of those applications have grown.

Meanwhile, the Association pointed out that purchase applications haven’t kept pace with refinance mortgages in spite of low interest rates.

And, yes, rates are low. They’ve fallen steadily since February and it appears that the Federal Reserve Bank, economists and everyone else trying to make sense of the economy agree on at least one thing – it’s quite likely that rates on consumer mortgages across the board will remain low for the foreseeable future.

High unemployment, shaky consumer confidence and all those explanations for why homes sales have remained soft are still weighing down on purchase mortgages. But, refinancing is a different matter. As rates drop, the number of people who can save a substantial amount on their monthly mortgage payments by refinancing increases.

There may be consumers out there who are a bit nervous about taking on a new mortgage when they’re worried about finding a job, staying employed or watching their incomes grow little. However, refinancing and saving some money is a different matter.

Furthermore, the low 3.52 percent rate on 15-year mortgages has led to another possibility for people considering refinancing. In some instances, it is quite affordable for people to convert those longer-term mortgages into a 15-year one, thus building up equity quicker and cutting down on the number of years they’ll have to make monthly payments to a lender.

The question, of course, is whether refinancing makes sense. Could those low rates translate into some real savings for your home? Mortgage bankers have spent years learning how to answer that question and others related to it. If you’re thinking about refinancing, visit with a mortgage banker and see if taking that step is appropriate for you.

Home Sweet Home is written by Ethan C. Nobles and is sent weekly to publications throughout the Natural State on behalf of the Mortgage Bankers Association of Arkansas.

About: Ethan C. Nobles:
Benton resident. Rogue journalist. Recovering attorney. Email = Ethan@FirstArkansasNews.net.

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