July 19, 2016 by Leave a comment

Brexit, the British decision to leave the European Union, is the latest unexpected event that’s driving down mortgage interest rates as investors flee Great Britain and European markets for the safety of US Treasury bonds and mortgage-backed securities. Europe’s dilemma is a boon for American homeowners as the uncertainty in Europe took raising rates off the Federal Reserve’s agenda for the next quarter.

Once again, rates are approaching near record lows, creating new opportunities for homeowners to refinance.

How homeowners have reacted to rate drops

Following the drop in rates, the volume of new applications surged 14.2 percent in the week ending July 1 and another 7.2 in the week ending July 8, compared with the prior weeks, according to the Mortgage Bankers Association. Refinances accounted for 64 percent of mortgage application activity in the recent week, up from 58.1% two weeks earlier.

Many of the new refinancers have already refinanced recently. These “serial refinancers” are willing to pay the origination and closing costs involved getting a lower rate. A recent study by Black Knight Financial Services found that serial refinancers played a significant role in the rise and fall of refinancing volumes throughout 2015 driven by interest rate fluctuations.

According to the report, refinances from borrowers who’ve had their prior mortgage for less than two years rose by 800 percent from the first quarter of 2014 to the first quarter 2015 as interest rates dropped. Of these borrowers, two-thirds of these refinances in the fourth quarter were from borrowers who had their mortgage from less than four years.

During the housing peak from 2005 to 2006 nearly all refinance volume was coming from borrowers who held their prior mortgage for less than four years, Black Knight reported.

“Term reductions remain popular among borrowers taking advantage of low rates; not surprisingly they are more popular among more aged loans, as borrowers do not want to restart the clock on their mortgage,” the report said.

However, serial refinancing can be a losing proposition.

What does that mean for you?

“If your time horizon is not long enough, you are not going to be able to recoup the cost of refinancing,” said Greg McBride, senior financial analyst for Bankrate.com.

Even those who roll closing costs into the new loan can end up on the short end of the stick. McBride says consumers who continually raid the piggy bank to pay for such costs should think twice before opting for another refinance since they are increasing their balance with each refinances as opposed to knocking it down.

scook@reeconadvisors.com'

Steve Cook is managing editor of Real Estate Economy Watch, which was recognized as one of the two best real estate news sites of 2011 by the National Association of Real Estate Editors. Before he co-founded REEW in 2007, he was vice president of public affairs for the National Association of Realtors. In 2006 and 2007, he was named one of the 100 most influential people in real estate.


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