Jul 26, 2021 - Economy

The coming mortgage refinance wave

Data: Freddie Mac; Chart: Axios Visuals

Mortgage rates are falling back to historic lows, which means homeowners are getting another opportunity to refinance their debt at a lower cost.

Why it matters: For many Americans, mortgage payments represent their biggest monthly outflow of cash. Refinancing at a lower rate reduces that burden, and potentially means more capacity to spend, which in turn stimulates the economy.

By the numbers: As of July 22, the 30-year fixed-rate mortgage averaged 2.78%, according to Freddie Mac. This is down from 2.88% a week ago.

  • It's the lowest level since Feb. 11.
  • This rate is below the effective average rate of all mortgage debt outstanding, according to data cited by Renaissance Macro Research.

Yes, but: Mortgage Bankers Association chief economist Mike Fratantoni tells Axios that while mortgage rates are very low, they were slightly lower late last year. And so those who refinanced then have no incentive to refinance now.

  • "They’re not a customer right now because rates are a half a point higher," he said.

But, but, but: The Federal Housing Finance Agency recently announced an end to the 0.5% mortgage refinance fee implemented during the pandemic.

  • While these savings may not bring back those who refinanced when rates were at rock bottom, they’ll certainly help attract those who still pay more for their mortgage than today's rates.

The bottom line: "With mortgage rates falling again to near record lows, combined with the removal of the adverse market fee effective August 1st, we will likely see another increase in refinance activity from already elevated levels," Bill McBride, housing economist at Calculated Risk, tells Axios.

Go deeper: If the Federal Reserve stopped buying mortgages

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