Rising Rates to Create Refinance Boom

Refinancing is expected to increase as the summer months begin, according to Countrywide and Quicken, two top lenders. As borrower costs rise and adjustable rate mortgages continue to go up, borrowers are expected to switch back to fixed rate mortgages. More than half the loans written by Countrywide in the first quarter were fixed rate loans replacing float rate loans, compared to 47% in the same quarter of 2005. As floating-rate loans reset, more borrowers are turning to the safety of fixed rate loans; with more than $1 trillion in floating loans due to reset the beginning of 2007, the trend seems like it will continue.

Interest rates rose more than 15 times in 2004, narrowing the gap between adjustable rate mortgages and fixed rate. Though adjustable rate loans are still on average 10% less monthly, it is expected that rates will continue to rise and borrowers will look to longer-dated mortgages. The increase of activity could help stabilize the mortgage market at a time when small and large lenders alike are feeling the strain, and a majority of large lenders are now looking to the fixed rate mortgages as a way to motivate business in a market that has proved unstable for the last three quarters.