Why Refinancing No Longer Makes Sense
by Gregory M. Rose, Originator Times
America has been on a refinancing high. Just a little more than 3 months ago rates were at an all time low and refinancing was slashing an average homeowner’s interest rate by 2%. But all good things must come to an end, and if you’re paying close attention, you’ve probably heard that fat lady warming up her vocal chords.
Yes, today’s rates are still attractive, but if you’re waiting for refinancing activity to pick up again, you’re in for a long haul. The last several years have witnessed an enormous boom for refinancing and the average homeowner’s interest rate is at an all time low of 6.16%. But if the average homeowner is currently considering refinancing, that homeowner would ultimately be saving less than ½% off their current loan. Most experts agree that a customer needs to save at least ½% to make the refinancing pay off in the long run, and the increasingly positive economic outlook presents little hope for lower rates that would spark another refinance boom.
In fact, many sources (like the Mortgage Bankers Association) believe that not only will refis continue to dry up, but that mortgage production in 2004 will be a mere shadow of the record $3.2 trillion this year.
As a result, many loan originators are searching for ways to maintain the income levels they achieved during the refi boom, as the number of transactions will undoubtedly continue to decline.
But smart loan originators are less concerned about the total number of transactions a month, and more concerned about maximizing the income opportunity within each transaction.
“If you’re a loan originator that’s used to doing a certain number of transactions a month, the prospect of only doing a third or half that amount a month is a very scary one,” said Bond Rate Monitor’s Scott Messina. “But rather than focus on the number of monthly transactions in an environment where transactions are clearly declining, focus on finding ways to increase your profitability. If you’re making an extra 10% to 25% on each loan you close, it will help offset the drop in volume.”
With a lack of refinancing activity, even in a rising interest rate environment, rates tend to improve at least one day per week. Making a decision to lock loans on those lower interest rate days enables you to take advantage of the cycles in the marketplace to increase your profitability.
“With a lack of refi activity, it’s even more imperative that loan officers maximize their profits on each and every loan,” added Messina. “With the information we provide, our subscribers effectively know what tomorrow’s interest rates are going to be today.” |
