Low Interest Rates Cause Refinancing of Homes Surge

Because of low interest rates available for homeowners, mortgage brokers have seen an increase of applications for refinancing of mortgages.

In addition, because mortgage interest rates are continually adjusting downwards, opportunities for homeowners to refinance home loans, on a continual basis, are presenting themselves. This type of refinancing is called serial refinancing.

When interest rates plummeted, there was a surge of refinance applications processed by brokers. As interest rates continue to decline, homeowners are continuing to apply for refinancing and potential new homeowners are applying for mortgages. Originally, those refinancing their homes took advantage of interest rates at a level of 4.5%. Subsequently, due to the recent action take by the Federal Reserve, interest rates have decreased even further to an enticing level.

Currently, if the homeowner’s credit rating is good, they may qualify for an interest rate of 3.5%.

Additionally, when refinancing the home, brokers can tie in the closing costs associated with the refinance process. This is an incredibly powerful combination of options to help the homeowner reduce their monthly payments. This combination of waived refinancing costs coupled with the drop in percentage rates could help the borrower to take advantage of an additional 1.5% decrease in interest rates as compared to a level of 4.5%.

Chris Howell, Academy Mortgage Corporation, observed that this activity in refinancing hasn’t been seen or experienced since early on in 2000.

Currently, a rate of 3.4% can be obtained on a 30 year fixed rate mortgage. The obvious advantage is the money that can be saved by paying less money per month and over the length of the loan.
Of course not everyone can take advantage of these low interest rates. Qualifying variables include the borrower’s credit scores, the value of the home and whether the current home loan is underwater. The term underwater means that the value of the home being purchased by the homeowner is valued at less than the value of the home according to market value.

Also, according to released reports, close to 2.2 million current homeowners have taken advantage of lower interest rates and have refinanced their mortgages. This figure represents a doubling of the number of homeowners who refinanced their homes in 2009.

Individuals who have taken advantage of these lower interest rates often report, because of reduced interest rates, a decrease in monthly payments. However, this allows homeowners a number of options. Some of those options include paying more on the loan, because of the decrease in interest rates and having more money to pocket, that money can be applied to the loan to reduce the principal. Consequently, those who have refinanced can reduce the term of their loan by years and interest paid on the mortgage.

The recent reduction of interest rates is attributed to the recent action by the Fed and the quantitative easing.