While refinance activity has been projected to continue slowing in 2014, millions of homeowners will still replace their mortgage with refis. Thanks to the continuing low interest rates available, many will save thousands of dollars doing it..
Based on data from mortgage guarantor Freddie Mac, only 38 percent of mortgages originated in 2014 will be put in place to refi existing home loans. The early part of 2014 is already confirming these predictions with a shift in mortgage activity towards purchase loans.
To some extent, this transition actually indicates that the real estate market is getting healthier. A decrease in refi volume coupled with growth in purchase mortgages means that people are choosing to buy new homes, which helps to support higher prices. The rebound in housing is also being supported by more reasonable lending terms. Even with new regulations creating a special class of harder-to-get "qualified" mortgages people in the industry feel that it will continue to be easier to get a home loan.
The downside to this trend is that interest rates are slowly moving up. This is making it less attractive for people that already have low rates to refinance their mortgage. However, those that are choosing to do a refi are taking advantage of special programs to refi upside down houses or seeking the security of a fixed-rate or the faster payoff of a shorter-term loan.
Those that are taking out a refi mortgage are still saving real money. Based on data from the last three months of 2013, the average person looking to replace their mortgage lowered their interest rate by 1.5 percentage points. This saved them roughly 25 percent and led to $3,000 in interest savings in just one year on a $200,000 mortgage. Those that took advantage of the HARP program saved an average of 1.7 percent on their loans.
Another sign of more responsible borrowing is that fully 83 percent of the loans granted either had the same balance or a lower one. This effectively means that only one-in-six were cash-out loans. While refinance loans are slowing down, they’re still helping millions of Americans save money, get more security or achieve a goal of being mortgage-free sooner, rather than later.