Are Refi's Dead Due to Rising Rates?
Sam Wagner
I Help Lenders and Real Estate Professionals Qualify More Buyers and Close More Home Sales!
As I visit mortgage offices, all I keep hearing is no one wants to give up that low rate and refinance.? So, does that mean refinances are a thing of the past?? Let’s take a look at some of the trends over time and determine if this is the case.
Interest rates hit the lowest point in history and everyone jumped on board to lock in that low rate.? House prices were climbing and equity was growing and people thought “this will be the last time I ever refinance until this home is paid off.”
Prior to the rate drops, the average interest rates on a mortgage over almost a decade was between 5.8% to 8.64% until the end of 2008. ? After the housing crash, the rates still trended between 3.79% to 5.34% through the 2010 decade.? Low rates are not a normal trend and should be treated as so.? Motivation has a lot to do with whether someone fixates on keeping that low rate.? So, let’s go over some current data!
Credit cards and loans have reached an all time high.? Not only are mortgage rates going up but so are the rates on credit cards and loans.? In just the second quarter of 2022, credit cards exceeded 500 million for the first time ever.? An additional 233 million new credit accounts were opened during the same second quarter.? The average credit card balance increased 13%, the largest year-over-year increase in more than 20 years.
So what does all this mean?? As inflation continues to increase and everything becomes more expensive, most wages are not increasing to offset these new costs.? People are assuming that just like a recession, it will come to an end and if they can offset expenses now, they will be able to pay it off later.? However, we are watching HUGE amounts of money being spent by the government which further prolongs inflation, meaning it could potentially be many years out before this comes to an end.
So, how are people spending their money?? You guessed it, paying their bills on credit cards and taking out loans to survive and support their families. ? With the average personal loan rates ranging from 9.3% to 22.16% (and higher) and amortizing over 3-5 years, these payments are getting very expensive and choking off even more money that people need to live on.??
According to the Federal Reserve’s data at the end of 2021, the average credit card interest rate was 14.51% but according to Money Geek’s dataset, the current average interest rate on credit cards is 19.2%.? If rates are continuing to climb to offset inflation, this debt is increasing and so are the rates, which means even higher payments on the debt already used.? If a credit card has over 20% interest rate, and someone is only paying the minimum payment (usually 2% of the balance), it can take over 30 years to pay off a credit card balance if it is over $5000.??
How long do you think people can go before they HAVE to tap into the equity in their homes to avoid being crushed by their debt?? With much higher interest rates and shorter time frames to pay them off, it is only a matter of time before people wake up and realize that leveraging their equity to free up money monthly now, is much more important than holding on to that 2.5% interest rate on their homes.??
In my opinion, we are right on the verge of a new refi boom based on controlling and managing debt.? Get ahead of it now and get familiar with amortization calculators to show your clients just how much money they are spending in interest and how much savings a cashout debt consolidation refi can actually do to save their money and protect their wealth!
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If they have waited too long, and have late payments, charge offs, or any other delinquencies make sure to send them over to us at Paragon Credit Advisors, so we can do a no cost consultation and discuss improving their scores and getting the access they need to their equity!
www.ParagonCreditAdvisors.com
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