As mortgage rates plunged in 2020, the mortgage industry saw unprecedented levels of refinancing demand. Now that rates have remained at historic lows for over a year, is this demand set to calm down? In this Fool Live video clip, recorded on June 14, Fool.com contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss why there could be strong demand in the refinancing market for some time to come.
Matt Frankel: A lot of people think that refinancing is drying up. Like in 2020. You refinanced, I refinanced. I was talking to on Anand Chokkavelu on another show, he refinanced twice last year. It's not just about interest rates, you know, interest rates are about where they were last year when I refinanced. But if my houses worth 20% more, I might be motivated to refinance again, to pull some of that cash out. Which you're are seeing a lot of people do, because that's a much cheaper way to pay for big purchase than to say put it on a credit card.
Jason Moser: Sure, absolutely. I mean, you can claim that interest on your taxes.
Frankel: I mean, a lot of people are doing what I did in South Carolina, building a pool in their backyard, because it's 150 degrees here in the summer. The best way to do it, the loans through the pool company that I looked at. The pool company I worked with offers financing and it was at about 8% interest. Meanwhile, I can do a cash-out refinancing my house for 3%, pay for something like that. It's just a much better way to make money or to get access to your money. I think you're going to see a lot of refinancing and that also will lift these banks as spending demand increases. Because the money they're spending comes from somewhere. It can come from credit cards, it can come from savings, or it can come from cheaper cost of sources of borrowing, where people have gotten very rich, as you mentioned. Home values collectively have risen by more than $1 trillion this year. People, they have a lot of wealth in their homes now that they didn't have a year ago. You could see a lot of long-tailed spending demand come from that. Don't make the mistake of thinking people are spending their stimulus checks and it's about to be done.
Moser: It shows you the value in being a home owner. Clearly, we always want to make sure you're spending within your means, but home ownership, it's a big responsibility, but it's certainly also going to open up a lot of doors that might not otherwise open, and just an important thing to keep in mind.
