Rising mortgage rates may have thrown some cold water on refinancing activity, but they have not frozen it completely. Two statistics released this week show signs of hope for refinancing.
Refinancing, present and future
On September 25, the Mortgage Bankers Association (MBA) announced that refinancing activity increased slightly over the past week. While mortgage rates remain over a full percentage point higher than they were a few months ago, this uptick in refinancing activity is a reminder that there are still opportunities to refinance.
In fact, although refinancing activity is down from earlier this year, refinancing still accounts for the bulk of mortgage applications. What accounts for this continued refinancing activity in the face of higher mortgage rates? There are a number of possibilities. Some people may take rising mortgage rates as a cue to switch from an adjustable-rate to a fixed-rate mortgage. Others may be shortening their mortgage terms to obtain a lower rate. Still others may be lengthening mortgage terms to lower their monthly payment.
In addition, people who have previously been unable to take advantage of lower rates because their loans were under water might just now be building enough home equity to refinance. This is where the other sign of hope for refinancing comes in.
The S&P/Case-Shiller Home Price Indices released on September 24 show that housing prices continued to climb in July, with the broadest index posting a 1.8 percent increase for the month and a 12.4 percent increase for the past year. Rising home prices represent more mortgages coming out from under water, and thus more opportunities to refinance. Anyone locked into a mortgage from the peak of the housing boom would be carrying an interest rate about 2 percent above current levels, so these homeowners would be very anxious to refinance as their housing values recover. This is why we may continue to see a steady volume of mortgage refinancing.
Keeping tabs with a mortgage calculator
If you've been rebuilding equity with an eye toward refinancing, you can use a mortgage calculator to keep an eye on what the savings potential is as rates change. If your refinancing calculator is showing an attractive rate differential, you might even want to hurry the process along by putting some savings into your current mortgage to build equity faster.
This article originally appeared on Calculators4Mortgages: "Latest figures reveal uptick in refinancing activity."