Low mortgage rates creating a refinance boom

Low mortgage rates have defied expectations

Mortgage rates have been quite low for an extended period of time, so long that both banks and consumers have been expecting them to go up for years. However, this is certainly not the case. In fact, rates have continued to drop, especially since the UK voted to leave the European Union and shook up financial markets around the world. The current record low for long-term mortgage rates in the United States is 3.31 percent, which was set in November 2012. Mortgage rates are nearly this low as we speak. They only look to be going lower, as well.

What does this mean for the consumers?

Low rates are causing a hailstorm of refinancings and new home purchases. Consumers, even those who are not experts in financial matters, are recognizing the opportunity that these rock-bottom rates provide. Mortgages are at the highest level in 3 years. Applications for refinancing have also spiked recently.

Very low rates sound like a great thing for consumers, and they are, for the most part. However, there is one negative aspect to this development in the mortgage industry. The consumers still have to qualify for a mortgage or for refinancing in the first place. A homeowner with good credit may have already benefited from low rates, so a refinance might not be the best option. As for getting a mortgage in the first place, low rates don’t really matter if the application is declined due to insufficient income or poor credit.

Just how low are mortgage rates relative to where they’ve been?


The average mortgage rates for the last 20 years are around six percent. Rates have been significantly below this number since 2009. Since fall 2015, rates have been below four percent. As previously mentioned, the vote in the UK to leave the European Union shook financial markets to their core and lowered rates further. Worldwide investors usually respond to crises such as this by purchasing American bonds. When the number of bonds purchased goes up, the interest rate for the bonds go up as well. For a number of complicated reasons, the interest rate in bonds has historically been linked to the mortgage rate. As you might be expecting, the bond interest rates right now are quite low.

The average rate for a thirty year fixed mortgage is currently 3.45 percent. As previously mentioned, the historic low is around 3.31 percent. The average a year ago was 4.09 percent, which shows that the current mortgage rate could hit record lows with-in months if the decline continues. Experts from all places in the industry thought that rates would increase, but they have defied expectations and continued to decrease. Rates in some sectors saw a mild bump several months ago, but quickly started going back down.

A massive surge in refinancing across the industry

A chance at a cheaper mortgage payment is causing many consumers to pursue refinancing. Many lenders specializing in mortgages say they’ve never seen more refinancing activity than they are now. New mortgages totaled over $500 billion in the most recent fiscal quarter. This is the biggest amount since 2013, when rates were roughly this low. More than 50% of these mortgage originations were loans to buy a home, which is the highest amount since mid-year 2007. In comparison to the increases in refinancing, these developments are quite tame. Applications for refinancing were up 11% last week (July 2016)  and 21% the week before. Experts predict that new mortgages will continue to rise, however. They say that it will rise roughly 7% for 2016 over the 2015 numbers.

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