Heads up RE professionals as a sudden spike in mortgage rates has developed, potentially impeding the refinancing boom that many US banks have profited from in the past couple years. Within the past week, the average interest rate of a 30 year mortgage has risen to 4.15%, an all time high for the past 14 months.
This change in interest rates can have a major impact on lenders and banks. Following the sharp spike in mortgage rates, there has been a major decline in refinancing applications, a reduction of 36% since the first week of May. Although a decrease in mortgage refinancing has been anticipated by many experts, the rate at which this change has occurred is unprecedented.
With this change in refinancing, many lenders and banks could be facing an immense loss in profits. Some major banks, such as Bank of America, Citigroup, and J.P. Morgan Chase, receive as much as 90% of their mortgage business from refinancing. This could lead to a loss of 19% of core mortgage-banking revenue this year according to BMO Capital Markets.
Although the increase of mortgage interest rates has deterred some applicants, many experts believe that refinancing could continue. With improvements in the economy and housing prices increasing, many homeowners are now capable of qualifying to refinance their homes. Some may decide that it is finally time to put their house on the market. This change could also lead to many homeowners switching from an adjustable mortgage rate to one that is fixed.
Many banks may also lower their requirements for refinancing due to their loss in revenue. This would allow the borrowers who were unable to take advantage of low interest rates to refinance their homes.
Brokers and agents may benefit from this as well. With fewer stipulations for mortgage applications, brokers and agents may have an easier time finding potential buyers who are capable of receiving loans.
Either way, it will be interesting to see how the change in mortgage rates will impact the market in upcoming weeks.
What are your thoughts?
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