And although some economists think the boom in refinancing may be easing, they don't believe it is in danger of going bust.
For the last two weeks, mortgage rates, tracked in a nationwide survey by Freddie Mac, have moved up amid increasing evidence that the economy, bruised by the recession and the terror attacks, is on the mend.
Mortgage rates are creeping back up as investors are raising their odds that the Federal Reserve may boost short-term interest rates this year.
"The huge surge, or tidal wave in refinancing has crested and indeed there will be a much smaller wave in the spring because so many people have refinanced and those who didn't are finding that mortgage rates, while still low, are not as attractive as they had been," said Stuart Hoffman, chief economist for PNC Financial Services Group.
For the week ending March 15, the average interest rate on a 30-year fixed-rate mortgage rose to 7.08 percent, up from 6.87 percent the previous week, said Freddie Mac, the mortgage company. A year ago this time, 30-year mortgages averaged 6.96 percent.
"I think we are still in a boom, but refinancing activity is not as strong as it was in October and early November," said Phil Colling, economist with the Mortgage Bankers Association of America.
In early November, rates on 30-year mortgages dropped to 6.45 percent, the lowest point since Freddie Mac began conducting its survey in 1971.
Low mortgage rates fueled a record $1.1 trillion in home refinancing last year, exceeding the previous record of $750 billion set in 1998.
"This year home refinancing activity is going to be hefty but quite a bit lower than last year," predicted Sung Won Sohn, chief economist for Wells Fargo, a major provider of residential mortgages. He believes refinancing will total $520 billion this year.
Economists predict mortgage rates will be fairly stable this year - hovering above the 7 percent mark.
Economists said the recent increases in mortgage rates may actually motivate some homeowners who have been on the fence about refinancing to jump off and redo their loans before rates move higher. Mortgage bankers say they often see refinance activity increase in a week when rates go up.
If 30-year mortgage rates get above 7.25 or 7.3 percent "then you would see a significant reduction in refinancing activity," Colling said. Some economists believe 30-year mortgage rates could rise to 7.3 percent by the third quarter and move to a high of 7.5 percent by the fourth quarter.
Even with the expected rise in mortgage rates, economists said they would still be at levels that would continue to support the housing market. Low mortgage rates powered record home sales last year.
By refinancing, people swap higher-interest debt for lower-interest debt, allowing them to trim monthly payments.
Freddie Mac said 15-year mortgages, a popular option for refinancing, averaged 6.59 percent this week, up from 6.37 percent last week. One-year adjustable rate mortgages rose to 5.08 percent this week, a slight increase from the 5.07 percent average rate last week.
The Freddie Mac rates do not include add-on fees know as points, which averaged around 0.7 percent of the loan amount for all three types of mortgages.
When should a person even considering refinancing?
Experts say a rule of thumb is that your new interest rate should be 1 percentage point lower than your current one to recover the closing costs related to the new mortgage. People also need to consider tax implications and how long they intend to stay in their home.
The Federal Reserve meets Tuesday to consider policy on short-term interest rates. The Fed slashed short term rates 11 times last year to revive the economy. But it decided to leave rates along in January and many economists believe it will do the same next week. Some believe the Fed could begin raising rates as soon as June.
The Fed's rate decisions affect mortgage rates in setting the levels of one-year adjustable rate mortgages and indirectly through the Fed's influence on longer-term rates that bond markets set.
http://accesswdun.com/article/2002/3/197406