How Refinancing Works and Who Benefits
The effects of the coronavirus will likely force many companies to cut revenue projections, and in some cases even bring their businesses to a complete halt. This is not good for lenders because when business activity slows and people fear a recession, they stop investing in their businesses and therefore stop taking out loans. U.S. GDP projections have already been cut significantly.
Despite the bad news, there is perhaps one bright spot for lenders: The sharp decline in interest rates from around 2% going into March to zero now has prompted a surge of refinancing activity on home mortgages. When people refinance, they change the terms of their loan with their bank or lender so they are paying a lower monthly interest rate. While that means less in loan payments for lenders, homeowners must pay application and closing fees to get this deal, which is immediate revenue for those lenders. As a result of lower interest rates, the Mortgage Bankers Association on March 10 projected that total mortgage originations would grow more than 20% year over year from 2019, driven largely by refinancing activity.
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Source Fool.com
