If mortgage rates rise as predicted this year, there will be a drop in refinancing volumes, reports CoreLogic staffer Molly Boesel.
Since a refinance costs money, a simple rule of thumb is to add 100 basis points to the current market mortgage rate as the rate at which borrowers would have an incentive to refinance. According to Freddie Mac, for the week of May 12, there was an average 30-year mortgage rate of 3.57%. Therefore the typical borrower would need to hold a mortgage rate of 4.57% or higher to make refinancing a money-saving option.
Most borrowers hold mortgages with rates up to 4.50%, with 62% of mortgages and 72% of UPB in this range. There are an additional 14% of borrowers and 13% of UPB with mortgage rates between 4.5 and 5.0%, and if mortgage rates were to increase by 50 basis points in 2016, these borrowers (about 5.5 million) will generally find refinancing unappealing. And, if interest rates were to increase by 100 bps, a total of 21% (over 8 million) are unlikely to refinance.