The refinancing boom has shot up mortgage rates. With rates
consistently in the all-time lows, it is not surprising that home refinancing
has improved across the country. Over a year ago, rates reached 4 percent but
today lenders are practically overwhelmed by the homeowners. The increasing
rate of refinancing is resulting in higher mortgage rates in the U.S.
Mortgage refinance is a financial contract where the
existing mortgage will be repaid in full through the funds of the new mortgage
being applied. By being replaced with a new finance, the old mortgage is
satisfied or paid.
Currently, refinances are in three types. First, there is
the cash-out type of refinance where the homeowner’s new applied mortgage can
exceed the previous mortgage by at least 5 percent. This kind of transaction is
often used to aid in home improvement endeavors or in order to decrease one’s
debts in their credit card, or it is sometimes done to satisfy student loans.
Cash-in refinance, on the other hand, is the kind of refinance
where the new mortgage of the homeowner will be reduced to at least 5 percent
compared to the current mortgage. This is common among homeowners who are
looking into specific loan-to-value (LTV) requirements just to achieve the best
rates of the bank.
The last type of refinance, also considered to be the most
common of the three, is the rate-and-term type of refinance. In this refinance
transaction, the goal of the homeowner is to decrease his or her mortgage rate
or to alter the term or lengthen the term of his or her loan. Sometimes people
choose to go with this category in order to both lengthen the term and decrease
the rate of the mortgage.
Today, it takes 57 days to refinance from application to
implementation of the transaction. The Mortgage Bankers Association (MBA) reports
that the growth of applications for mortgage refinance has increased to at
least 15 percent since last year. This refinancing boom is due to the
decreasing mortgage rates and implementation of new refinance programs that
cater underwater homeowners.
During the first quarter of 2012, the Home Affordable
Refinance Program (HARP) revamped and caused a huge wave of refinance
applications from homeowners who were not eligible to refinance their homes in
the previous program. Most homeowners applied for HARP’s rate-and-term
refinancing program and had their monthly mortgage rate drop to 32 percent.
In 2012 alone HARP served almost one million households.
Without the program, this number of homes would not have had the chance to
refinance. Another culprit of the increasing mortgage rates is the recovering
economic condition of America’s housing market. This caused home values to
increase which in turn is pushing homeowners to refinance their homes for lower
monthly mortgage payments. Since mortgage rates last year hit close to an
all-time low of 4 percent, millions of American homeowners have become eligible
for the refinance program.
