Mortgage-prepayment rates have soared to the highest level in seven years as homeowners take advantage of the lowest borrowing costs on record to refinance.
Home loans were repaid in August at a pace that would erase 25 percent of the debt in a year, according to Lender Processing Services, a Jacksonville, Fla.-based data provider that tracks 40 million mortgages.
The cost of 30-year loans dropped to 3.4 percent last week, helping push refinancing applications to a three-year high, after the Federal Reserve said it will buy $40 billion of mortgage securities per month to stimulate the economy.
That followed government efforts to increase refinancing with new rules designed to expand eligibility and reduce costs.
Most Read Business Stories
- Seattle-area company allegedly compromised data of 3.7 million people
- If Congress doesn't mandate Boeing 737 MAX safety retrofits, Europe will
- Amazon’s AWS cloud unit to add staff in 2023 as company sheds workers
- Oregon robotic sex toy pioneer appears to have shut down
- Why are men in prime working years missing from the labor market?
“There should be a lot of opportunity for people to refinance,” said Herb Blecher, senior vice president at LPS Applied Analytics. “The interest-rate environment is favorable even for folks who refinanced recently to get a new loan.”
Prepayment speeds also reflect borrower defaults and debt retired in home sales, which increased in August to a two-year high as the housing market showed signs of recovery.
Refinancing applications climbed almost 20 percent last week to the highest since April 2009, leaving this year’s average pace 56 percent greater than in 2011, according to a Mortgage Bankers Association index released Thursday.
Borrowing costs for typical 30-year fixed-rate loans have declined from last year’s high of 5.05 percent, according to Freddie Mac surveys. T
Prepayment speeds in August rose the most among loans made last year, climbing 23 percent, LPS data show.