Falling Demand for Mortgage Refinancing

Fewer people refinance their mortgage loans and the downward trend is here to stay. While refinancing was at its peek in the beginning of 2013, during the first few months of 2014 it is making a serious dip. Could this have a major impact on the house financing market?

During February and March 2014, the demand for mortgage refinancing experienced continuous decline. In the beginning of April 2014, the applications for refinancing account for 53% of all home loan applications. For comparison, in May 2013, their share was some 76%. The annual drop in the applications is 73%.

The primary reason for the massive drop in the demand for mortgage refinancing has to do with the stricter applicant requirements introduced in January 2014. Applicants are required to have a debt-to-income ratio no higher than 43%. Stricter rules apply to missed or late payments. Applicants must provide documents proving each and every source of income including gifts and other financial contributions.

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Lenders still have high credit score requirements with the average score on approved mortgages being 724. As the demand for their housing finance products is declining as a whole, some of the major players have already lowered their credit score requirements slightly. Most lenders will now approval applicants with credit score of 600 instead of 620 for FHA loans.

The increase in interest rates has had an effect on the demand for mortgage refinancing as well. For one year, the increase is 1%. Still, the interest rates continue to remain at very low levels. The current rates are much lower than they used to be before the housing market bubble burst of 2007. The effect of their increase on refinancing applications is not as significant as that of the stricter mortgage requirements introduced in the beginning of 2014.

The demand for mortgage refinancing is expected to decrease even further as interest rates continue to rise while the requirements remain strict.



Christian Calvin mortgage Christian is a contributing writer for Mortgage.info. He is a graduate from the University of Tennessee with a degree in Communications and a concentration in Broadcasting. Christian has served as vice-president for a privately-held company for more than 20 years. Additionally, he has also applied his writing and business knowledge to various websites with a focus on business and sports news . . . both of which are passions. Christian enjoys playing golf and spending time with his family and friends.

Contact: christian@mortgage.info

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