After dipping below 50 percent at some points in 2014, the mortgage refinance space was healthy again toward the end of the year and data shows the share of refinance applications hovering at a very decent 70 percent. This has largely been driven by a significant decline in mortgage interest rates, which are now at 20-month lows on most reports. Going forward, experts from Freddie Mac believe that the refinance market will continue to thrive this current year, even with the share of refinance applications likely to go down.
According to Freddie Mac, the refinance share may hit the 40 percent mark within the year, a stark contrast to today’s refinance share and the 63 percent recorded in 2013. Still, home prices are still ticking up, and were up by 4.5 percent year-over-year in the December 2014 quarter.
A separate statistical report from CoreLogic has home prices, distressed sales included, up 5 percent in December 2014 compared to the previous December. And it is these stats that make Freddie Mac believe the refinance space will be quite lucrative in 2015.
“Lower mortgage rates, coupled with greater house prices appreciation last year, also brought about a larger share of borrowers cashing out home equity at the time of refinance,” said Freddie Mac deputy chief economist Leonard Kiefer in a statement. “However, while the percentage is up, the total dollar amount declined by nearly $1 billion from the third quarter of 2014, and nearly $4.6 billion from the fourth quarter 2013.”
Freddie Mac also pointed out that the median appreciation of refinanced homes was positive for the first time since 2009, which means more than 50 percent of refinance consumers enjoyed an increase in home equity since they originally took out their mortgage. Further, those who refinanced may also enjoy net savings of about $5 billion in interest over the first year of the new mortgage, down from $20 billion two years ago, but still a lot of savings
In the December quarter of 2014, borrowers’ mortgage rates improved by close to one fourth upon refinancing, with the average reduction in mortgage interest rate at about 1.3 percentage points. There were also 34 percent of homeowners who refinanced into a fully amortizing mortgage with a shorter life of loan, allowing them to pay down the value of their mortgage and build equity faster than they would have on their original mortgage.
So far, data seems very favorable for refinancing, according to reports from both the Mortgage Bankers Association and Freddie Mac. In the most recent MBA report, mortgage applications were up 1.3 percent week-over-week, while the refinance share of mortgage activity was down a bit, but still relatively high at 71 percent.
In Freddie Mac’s latest mortgage rate survey, 30-year fixed-rate mortgages averaged 3.66 percent in the week ended January 29; that is three basis points higher than the previous week’s 3.63 percent, but over 60 basis points lower than the previous year’s 4.32 percent average. According to the housing giant, this should boost the refinance market in the first, or March ending quarter of 2015.