The developed world has lived with unnaturally-low interest rates for so long that it’s become hard to imagine what life in a normal financial system would be like.
But as rates finally start to rise, some of the necessary lifestyle adjustments are emerging. A big one is the fact that the days of refinancing one’s house every few years to extract free cash or lower the monthly mortgage payment are over. Now you pay what you pay, for as long as it takes.
That’s also bad news for the banks that have gorged on refi fees for the past decade:
Homeowners Ditch Refinancings as Mortgage Rates Rise
(Wall Street Journal) – Refinancings make up a smaller portion of the mortgage business than at any time in the past two decades, posing a challenge for lenders who already fear higher interest rates and climbing house prices could eventually depress purchase activity.
Last year, 37% of mortgage-origination volume was because of refinancings, according to industry research group Inside Mortgage Finance. That is the smallest proportion since 1995, and the number of refinancings is widely expected to shrink again this year. In 2012, refinancings were 72% of originations.
While purchase activity has climbed steadily from a post-financial-crisis nadir in 2011, growth in 2017 wasn’t enough to offset a $366 billion decline in refinancing activity. The result: The overall mortgage market fell around 12%, to $1.8 trillion, according to Inside Mortgage Finance.
What’s more, there are fewer homeowners eligible to refinance because of rising rates. The number of borrowers who could benefit from a refinancing is down about 37% from the end of last year, estimates Black Knight Inc., a mortgage-data and technology firm. At 2.67 million potential borrowers, this group is at its smallest since 2008.
“The market has just gotten so very competitive because every loan matters,” said Ed Robinson, head of the mortgage business at Fifth Third Bancorp . He added that the bank is contacting homeowners who could be eligible for a refinancing in coming years to help maintain that business, and it is also instructing mortgage-loan officers to focus more on purchases.
