The start of a new year inevitably leads to predictions for the year ahead in just about every industry and sector. The mortgage industry is no exception. While it is impossible to definitively forecast the future, knowing what to anticipate can help mortgage lenders make informed decisions as they move through the year.
Based on insights from industry insiders and the key mortgage industry trends from last year, here are some mortgage lender trends that are likely to continue throughout 2020.
Reduced Mortgage Interest Rates
Throughout 2019, the Fed lowered its interest rate benchmarks, prompting mortgage lenders to reduce the interest rates on mortgages. Experts expect interest rates to remain low for 2020.
“The benchmark 30-year fixed rate mortgage will hopscotch back and forth over the 4 percent mark for much of 2020, remaining low enough to facilitate home buying and providing ample refinancing opportunities on those trips below 4 percent,” says Greg McBride, CFA, Bankrate chief financial analyst.
If this prediction holds true, it will mean an active borrowing environment for mortgage lenders and home buyers.
Borrowers Will Recast Mortgages
Borrowers have been taking advantage of lower interest rates and recasting their mortgages to save money in the long run on their home loans. This trend is likely to continue as long as the interest rates on mortgages stay low. Those homeowners that have enough cash on hand to make a lump-sum payment toward the balance on their mortgage will do so in exchange for a re-amortization with a shorter loan term and a lower interest rate.
Homeowners Will Capitalize on Cash-out Refinancing
In another bid to pay less over the life of a mortgage, homeowners have been capitalizing on lower interest rates through cash-out refinancing. According to a report by CNBC, there was a 24 percent increase in cash-out refinances over the last quarter of 2018, and they made up 52 percent of all refinances last year.
Cash-out refinancing is enticing to homeowners because it allows them to convert their home equity into cash which many are using to pay off other debts or fund home improvement projects. As long as interest rates stay low, more homeowners will capitalize on this opportunity.
More Borrowers Will Eliminate PMI
Another positive effect of an improving economy and lower interest rates has been the improvement in people’s financial situations. This greater financial stability has allowed homeowners the opportunity to eliminate paying private mortgage insurance (PMI) by enabling them to put extra money towards their mortgages to reach the benchmark of 20 percent down on the home’s value.
Borrowers Will Continue to be Conservative Spenders
Borrowers won’t soon forget the housing bust of 2008, which means they will continue to be more conservative in their spending when it comes to purchasing real estate. Even though lower interest rates and opportunities to recast and refinance mortgages will persist, people will continue to be diligent about spending within their means.
These trends can help mortgage lenders, and by extension real estate agents, prepare for what 2020 may have in store for the real estate industry.