(As seen on WZZM TV 13) Mortgage lending activity is slowing after nearly two years of “once-in-a-lifetime” rates and subsequent opportunities.
Homeowners have been aggressively taking advantage of the low mortgage refinancing rates since the pandemic began.
Bradley Henion, chief lending officer for ChoiceOne Bank, said he saw an approximately 230% increase in mortgage lending in 2020 from 2019 and about 85% of that activity was mortgage refinancing.
“Mortgage lending in 2021 has remained approximately 150% over 2019 but has decreased from 2020 due to the volume of refinancing slowing,” he said. “Long-term rates are slowly increasing and there is a lack of inventory on the market.”
Scott Setlock, senior vice president for mortgage and consumer lending at Mercantile Bank of Michigan, said his bank recorded $567 million in refinancing activity in 2020. That is an increase from 2019 when he said Mercantile recorded $185 million in refinancing activity.
Setlock said clients took advantage of the low mortgage refinance rates for multiple reasons.
“Someone may have a 30-year mortgage and they want to refinance it into a 15-year mortgage,” he said. “The benefit of that is, usually, a 15-year mortgage is a lower interest rate than a 30-year, so when rates are down like they are, they’re really getting a kind of a double benefit because rates are down, and 15-year rates are typically lower than 30-year rates.
“They’re really getting some interest rate benefit and now they’re going to pay off that mortgage much, much quicker than what they would have if they stayed on a 30-year mortgage. These customers are choosing typically to pay more per month to help pay off their mortgage quicker. More of their monthly payment goes to pay down the principal of their loan instead of the interest, and so it really starts knocking out that loan balance.”
Setlock said even those refinancing one 30-year mortgage into another 30-year loan were seeing significant benefits.
“They’re just benefiting from the low interest rates, but they’re still trying to keep that payment overall at a level that represents a 30-year repayment on that loan,” he said. “We do see a lot of that, and so all things equal, it would lower their monthly payment because their interest rate went down.”
Similar to ChoiceOne, Setlock said Mercantile is seeing mortgage refinance activity “leveling off.”
“What we have seen this year is still very robust refinance activity, especially through the first nine months of this year, but not quite at the same clip as last year,” he said. “The pool of potential refinance applicants has decreased because a lot of homeowners refinanced back in 2020. Over the last couple of months, we have seen rates start to tick up a little bit, which then causes mortgage rates to go up and so we have seen some leveling off of the refinance activity.”
Setlock said mortgage refinancing rates are increasing, in part, due to fear of inflation.
According to Freddie Mac, the average annual interest rate on a 30-year, fixed-rate mortgage in 2019 was 3.94%. The annual average declined in 2020 to 3.11%, with its lowest rate at 2.68% in December 2020.
Between January and October 2021, the lowest 30-year fixed-rate was 2.74%, which was in January. The highest it has been this year is 3.08%, which was in March. The average rate in October was 3.07%.
The average annual rate for 15-year, fixed-rate mortgages also declined from 2019 to 2021. The annual average for those loans in 2019 was 3.39%, compared to 2.61% in 2020, according to Freddie Mac. The lowest 15-year, fixed-rate mortgage in 2021 was 2.15% in August and the highest rate was 2.39% in March. The 15-year fixed-rate mortgage in October was 2.31%.