Falling mortgage rates mean $4 trillion worth of debt could benefit from refinancing

Houston Chronicle | R.A. Schuetz| Sep. 5, 2019

This week, as mortgage rates have continue to decline in the face of economic uncertainty, the average rate for a 30-year fixed-rate mortgage has fallen below what Freddie Mac's chief economist, Sam Khater, calls a "cusp."

As rates fall, the pool of people who could benefit from refinancing their mortgages increases. And Freddie Mac's data showed that when mortgage rates fell below 3.5 percent, the number of people eligible for a refinance would surge.

When rates fell below 4 percent in May, holders of up to $2 trillion worth of debt could benefit from a refinance. When they fell below 3.5 percent, said Freddie Mac, that figure would rocket to $4 trillion.

That happened this week, as the average rate for a 30-year fixed-rate mortgage fell to 3.49 percent, over a percentage point lower than the year before.

"This allows folks that have bought over the past six or seven years, who haven't had a refinancing opportunity, a chance," Khater said. "And a lot of these folks have gotten quite a bit of appreciation," which means that they would have much higher equity when they take out the new loan, possibly eliminating the requirement for mortgage insurance.

The development adds fuel to a refinancing wave that has already begun. According to a survey by the Mortgage Bankers Association, on average, lenders produced $601 million worth of loans in the second quarter, up from $385 million the quarter before.

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