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Mortgage Refinancing Spurred by Increased Interest Rates

An increased number of homeowners are expected to refinance their home mortgages as interest rates rise, according to Countrywide Financial Corp.



Countrywide is the largest U.S. mortgage company, based in California. The company expects more homeowners to switch to fixed-rate loans as interest rates continue to climb.



According to Countrywide, around $200 billion of adjustable-rate mortgages will reset this year. Fifty-five percent of the home loans made in the first quarter of this year were used to replace adjustable rate mortgages with fixed-rate mortgages. At this time last year, only 47% of mortgages were used in this manner.



One trillion dollars of adjustable mortgages will be due to reset next year.



With interest rates rising steadily since June of 2004, the difference between the monthly payment on an adjustable-rate and the monthly payment on a fixed-rate has narrowed. There is around a 10% difference between the two.



Economists expect the Federal Reserve to raise the benchmark interest rate to 5% on Wednesday, May 10.



The average rate on a one-year ARM has risen from 3.76% in June of 2004 to 5.67% on May 5. Borrowers who took out adjustable-rate mortgages in 2004 have possibly seen an increase of $230 in their monthly payments.



Fixed-rate mortgages had an average rate of 6.12% in June of 2004. Today, they stand at 6.59, according to Freddie Mac.



Bob Walters, chief economist for Quicken Loans, the largest internet lender in the U.S., agrees with Countrywide in that more borrowers with adjustable-rates are "now moving out of the short-term rates into the safety of longer term rates while they are still in that middle-six percent range."



Mortgage volume is expected to increase 9% this year, down from more than 10% each year from 2002 to 2005, according to Fannie Mae. Residential mortgage debt is expected to exceed $10 trillion next year.



About RateEmpire.com

RateEmpire.com an Internet consumer banking marketplace. RateEmpire.com is a destination site of personal finance, banking, investing, taxes, debt management and mortgage rates. RateEmpire.com provides mortgage guides and financial rates and information.



Source: http://www.RateEmpire.com

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