Rising Rates May Not Spell Decline

Lately, there have been fears in the mortgage industry that the availability of beneficial refinancing options is drying up.  The Mortgage Monitor, a publication by Lender Processing Services, claims that the pool of borrowers who can refinance shrank 33% from 8.9 million to 5.9 million in June.  This is a very frightening statistic for lenders when seen independently, but there are a number of other factors that need to be taken into consideration as well.

According to the report, 12% of active loans have refinance potential.  This leaves the pool at an estimated 6 million borrowers. While refinancing has dropped in the last quarter, it has been a strong source of revenue for banks over the last few years. A Wall Street Journal article reports that “as of the end of June, refinancing activity represented 64 percent of all mortgage applications, which was the lowest volume since May 2011.” But the article also suggests that, “borrowers who couldn’t refinance when rates were lower because their homes were barely worth what they owe may be better positioned now.”

Home prices have been rising over the last year, up to 10 percent in some areas, giving people more equity.  This benefit indicates that market forces may be more favorable for them, even with the rise in mortgage rates.  Those who plan to stay in their homes for the long-term who have a variable-rate mortgage which is about to rise may also benefit by refinancing.

Lenders are always forecasting mortgage rate impact in order to ensure and maximize revenue, but it’s important for those in the industry to note that a dip in one area does not always translate to an across the board tanking of the industry itself. There are still millions of borrowers who could benefit from refinancing options even with a higher rate.

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