Homeowners in Maine put the brakes on the mortgage refinancing craze after interest rates doubled in recent months, reflecting a national trend.
Owners nationally refinanced 36 percent fewer loans in the second quarter of this year compared with the first quarter. While original purchase loans still grew, they slowed to 7 percent, the smallest second-quarter gain since 2000, according to a report released Thursday by ATTOM Data Solutions, a real estate data firm. Refinancing is often done for a lower interest rate or to take equity out of the home.
The slowing of both types of loans provides more evidence of the cooling real estate market in Maine and elsewhere. Price reductions and more homes coming onto the market are more recent signs of a cooler market.
Greater Portland, the center of Maine’s pandemic housing rush, experienced similar trends, with loan refinancings down almost 21 percent from the first to second quarters and down 54 percent on an annual basis. Purchase loans rose well above the national average, up almost 19 percent over the first two quarters and up 29 percent comparing this year’s second quarter to 2021.
“Mortgage rates that have virtually doubled over the past year have decimated the refinance market and are starting to take a toll on purchase lending as well,” said Rick Sharga, executive vice president of ATTOM.
Banks and credit unions in the state are seeing refinancing demand and home purchase activity wane. Camden National Bank, one of the largest Maine-based banks, saw 60 percent fewer refinance transactions compared with last year and a 20 percent decrease in loans for home purchases, said Renee Smyth, executive vice president at the bank.
Another of Maine’s largest banks, Bangor Savings Bank, has seen purchase loans remain strong, but refinancing volumes decrease unless customers are taking need-based loans.
“People generally are not able to refinance their loans to decrease their interest rate, but they may want to tap into their home’s equity with a cash out refinance,” said Laura Johnson, the bank’s senior vice president and director of mortgage and consumer lending.
CUSO Home Lending has seen a 60 percent drop in refinancings and a 12 percent drop in purchase loans compared with last year. Many buyers have moved to the sidelines until market prices and rates stabilize, CEO Russell Cole said, citing the combination of high rates and home prices.
University Credit Union in Scarborough also has seen a significant slowdown in refinance applications, April Gleason, chief lending officer, said. However, loans for purchase applications have not slowed much because people still want to buy homes, she said.
Bangor Federal Credit Union expects members to try to control their payments by converting interest-only home equity loans to fixed-rate ones, CEO Basil Closson said.
Nationally, homeowners took out a total of 2.39 million mortgages in the second quarter of this year, down 13 percent from the first quarter and down 40 percent since the second quarter of last year, the biggest annual drop since 2014, ATTOM found.
The loan refinancings totaled $310 billion in the second quarter, down 35 percent from the first quarter and down 56 percent from one year ago.
The downtrend is expected to continue. The Mortgage Bankers Association in a July forecast predicted refinancings would drop 80 percent in the second half of this year compared with the same time last year, and purchase origination loans to fall 7 percent. It noted that the housing sector “has been severely impacted by the spike in interest rates.”
The National Association of Realtors reported recently that pending home sales declined for the second consecutive month in July and for the eighth time in the last nine months. The association said that in June, housing affordability plummeted to its lowest level since 1989. A 30-year, fixed-rate mortgage and a 20 percent down payment boosted the monthly mortgage payment on a typical home to $1,944, up 54 percent from one year ago.
“In terms of the current housing cycle, we may be at or close to the bottom in contract signings,” said Lawrence Yun, the association’s chief economist.