Jim Horgan has had a rough couple of years. As elevated interest rates created the worst housing market for sales in nearly three decades, the suburban Boston mortgage branch manager had seen his team of loan officers dwindle from eight to one, and getting customers was a slog.
He’s striking a decidedly more upbeat tune now. He says his Needham, Massachusetts branch of Paramount Residential Mortgage Group took in more mortgage applications in September than any other month this year. He’s planning to add three loan officers to his staff, calling those who stepped away when times were lean and suggesting they reactivate their licenses.
“I tell them, ‘We’re about to be swimming in mortgage applications — and you can too,’” Horgan said, invoking the Rolling Stones. “It’s time to get the band back together — Mick and Keith are going on tour.”
Horgan has reason for optimism. The business of refinancing mortgages is poised for takeoff, with volume last week nearly three times higher than in the same period a year ago, according to data from Mortgage Bankers Association. While that’s still far lower than the heydays of early in the pandemic, it’s a marked change from recent years.
Customers who bought homes when rates were above 7% are now in a position to save a couple hundred dollars a month with a loan closer to 6% instead. And if rates continue to decline, as economists project, they can do it all over again — and save even more.
But whether this refinancing wave gets big enough to match Horgan’s confidence will depend on how much lower rates go. Many of the 4 million homeowners who financed home purchases in the past 18 months will be able to save some money by refinancing, according to brokerage Redfin Corp.
Then there’s the millions of homeowners who have built up $35 trillion of home equity, the most relative to home values since the 1950s, according to the Federal Reserve. But those people will need to see rates drop a lot more before they think about tapping into that treasure chest through what’s known as a cash-out refinancing. After all, 75% of US homeowners are locked into mortgages with rates below 5%, according to Redfin, and few economists expect them to drop quite that low.
“This is a pretty small wave,” said Chen Zhao, economic research lead for Redfin. “But there’s millions of mortgages out there that could be in the money already for a refinance or could be in the money in the near future.”
Fannie Mae says refinancing volume for single-family homes will be $375 billion this year and roughly $650 billion in 2025 assuming rates fall to about 5.7% from a current level of 6.14%. But that’s nowhere near the $2.8 trillion of refinancings in 2020, when mortgage rates were as low as 2.85%, according to MBA. Whether borrowers jump now or wait for further drops ahead will depend on their personal circumstances, including how long they plan on staying in their homes, said Mark Palim, chief economist for Fannie Mae.
“Homeowners have life events and financial plans and have to pick what’s the right time to make that move,” Palim said.
In January, Matt Miller bought an 1,800-square-foot (167-square-meter) bungalow in the Chicago suburb of Elmwood Park for $415,000. When he locked in a 30-year mortgage at a 6.99% rate, Miller said his loan originator told him “‘Congratulations, you’re one of few people with something below 7%.’”
Miller, a lighting designer whose wife works at a local theater, is in the process of refinancing to 6.625%. While the $104 savings each month might not seem like much, it just about covers the cost of diapers for the couple with two young children, he said.
“Right now, honestly, we’re thinking of our mortgage payment like rent — daycare is insanely expensive,” Miller said. “The plan is, as rates drop, to do this a number of times and ride the wave down.”
Similar to taking out a mortgage for a purchase, there are also fees associated with refinancing. Miller is avoiding having to pay closing costs upfront for his loan by accepting a slightly higher rate from his lender, but it’s still lower than what he’s now paying.
His loan originator, George Kamberos of CrossCountry Mortgage, is encouraging other clients to come forward, too. Since Aug. 1, 33 borrowers have refinanced with him compared with just six the rest of the year, saving as much as $269 a month, he said.
“Every month you wait, you’re paying that higher rate,” Kamberos said. “This way you save immediately from day one.”
This article was provided by Bloomberg News.