TRENDLINES: Rising Rates' Economic Impact Refinancing Window Closes-and With It a Growth Avenue
DECLINING INTEREST RATES PROVIDED a great opportunity for homeowners to lower their monthly debt payments by refinancing about $1 trillion worth of mortgages over the past two years. Each time rates dipped, applications for refinancing soared, according to an index from the Mortgage Bankers Association of America, which uses the week ended March 16,1990, as a base of 100. When rates stabilized or ticked upward, applications fell. With rates now going up, analysts say refinancings will no longer be a factor supporting consumer spending.</br></br>Millions of American homeowners seized a golden opportunity to repair their tattered finances over the past two years as falling interest rates allowed them to lower their monthly home mortgage payments by refinancing their mortgages. About $1 trillion worth of home mortgage loans were refinanced during that time.</br></br>And millions of home buyers benefited when they bought homes and secured mortgages with rates much lower than those on their old houses.</br></br>Many economists say that refinancings are an important way in which consumers can free up cash by lowering their monthly payments, turning some of their equity into cash and perhaps paying off other debts that carry higher interest rates than mortgages. The benefits from the lower paymentsÛÓor in some cases paying off the mortgage fasterÛÓwill continue for years to come.</br></br>But as the chart at the right shows, the upward surge in mortgage rates in the last few months is choking off the refinancing opportunity for most homeowners who have not already acted. Mortgage lenders around the country report that mortgage applications for refinancings have dried up, while those for purchasing a home have stayed at a high level.