Mortgage prepayment activity fell 19.1% from March to April and 61.8% from a year ago, according to a study by mortgage data and analysis firm Black Knight.
Why is prepaid activity significantly reduced? Greg McBride, Chief Financial Analyst at Bankrate, said the main factor was how much refinancing activity fell as mortgage rates rose and mortgage rates soared. Interest rates on 30-year fixed-rate mortgages remained around 3% in 2021, but are now above 5%, with some professionals saying they will be even higher. ((((You can see here the lowest mortgage rates you can qualify for.. ) “High mortgage rates may be the cause of the plunge. Many homeowners have lost a significant incentive for refinancing as mortgage rates have exceeded the 5% threshold. “It was,” said Kate Wood, a mortgage expert at Nerdwallet.
Part of this may also be related to inflation, which is now at its highest level in 40 years. “Inflation has increased significantly since the beginning of the year, and as a result, many households may have less cash available for unnecessary things, such as putting extra money in mortgage payments. “Says Jacob Channel, senior economic analyst at Lending Tree.
Paying faster than necessary helps the borrower save on tax-deductible interest, and paying off the loan faster means increasing the amount of home capital. However, some mortgage companies slap borrowers with prepaid penalties. In addition, many have mortgaged or refinanced at very low interest rates. This means that mortgage rates are so low that you should direct cash to high interest rate debt. However, it is also important to note that this is not the first time that prepaid activity has declined significantly.
What does this mean for home buyers and sellers?
Ultimately, as long as buyers can keep up with regular monthly payments, even fewer people paying additional mortgages will probably not have a significant impact on the wider housing market, the channel said. I will explain. “Because prices and interest rates are just as high, some buyers may want to be able to repay their mortgage earlier than planned, but may have to resolve it by not being able to pay additional mortgages. “Channel says.
According to the channel, the decline in prepaid activity may indicate that new buyers have less cash, so some sellers are more at home than was common in most of 2020. May be on the market for a slightly longer period of time, or you may find that the number of prospective buyers is small. In 2021, the channel says. “But there is still a lot of demand for homes among buyers, so sellers don’t have to worry too much,” he adds.
And in all of these there may be advantages for home buyers and sellers. According to McBride, lenders aren’t flooded with refinancing applications, so if the lenders have enough staff, the mortgage process could go a little faster.