In 2020, mortgage refinancing grew by 150% – the biggest boom in recent history.
This surge began in March of last year, after the Federal Reserve implemented an emergency rate cut to preemptively mitigate the pandemic’s effect on the national economy.
Shortly after, mortgage rates began to follow suit – leading homeowners and homebuyers to take advantage. Each month, mortgage rates hit record lows, resulting in the most volatile year for interest rates since 2008.
Despite credit unions closing their doors to visitors during the pandemic, phones have been ringing off the hook with homeowners looking to refinance.
Mortgage Rates Hit Record Lows
In October of last year, the average U.S. 30-year fixed mortgage rate hit 2.81%, the 10th record low that year alone, as well as the lowest rate recorded by Freddie Mac in the past 50 years.
In December, mortgage rates hit the astounding low of 2.67% – and then fell to a new record low of 2.65% in January.
These repeated record lows motivated millions of homeowners to refinance their mortgages – but it wasn’t just the falling rates.
Pandemic-Fueled Race To Refinance
With quarantines, new restrictions, and a transition to working from home, the pandemic gave lots of Americans more time to consider refinancing in the first place.
For homeowners looking to save money wherever they could, the record low interest rates were a welcome invitation to consider refinancing, even if they hadn’t thought about it before.
While the credit union industry was certainly threatened by the pandemic, the uptick in loan origination left loan officers flooded with loan requests and a pipeline that carried them well into 2021.
Now – Refinancing Applications Are Declining
However, interest rates are slowly starting to creep back up as Americans shed their pandemic restrictions and enter the world again. The average rate for a 30-year fixed refinance loan is currently 3.14% (as of July 6), up from that record low of 2.65% in January.
While interest rates are still low, demand for refinancing and purchase loans has been steadily falling in the past few weeks.
Housing inventory is still at an all-time low, and many Americans who were considering a home purchase are now looking to stay put. As the refinancing boom begins to slow and rates begin to creep back to normal, credit unions need to prepare to fill their loan pipelines.
The best way to meet members’ needs in today’s environment and tap the largest overlooked lending opportunity? Renovation loans.
Demand For Renovation Financing Is Exploding
While the white-hot real estate market may be hurting mortgage loan applications due to the lack of housing inventory, it’s forcing homeowners everywhere to take a look at their current homes and find a way to make them work by fixing them up.
According to Houzz, the share of homeowners planning to renovate (56%) in the upcoming year is the highest it’s been since 2017 (52%). And not only is demand growing, but specifically, demand for higher-cost projects.
Higher budget projects saw an increase to $85,000 or more in 2020, compared to just $80,000 in 2019 and 2018.
Many homeowners are looking for a way to take advantage of newfound home equity and renovate their homes (without refinancing out of the incredibly low rate they just locked in).
New Kind Of Home Equity Loan For Major Remodels
To gain new members and keep up with homeowner demand, some credit unions have focused their efforts on offering new renovation loan products.
RenoFi, a financial technology company, has partnered with credit unions nationwide to offer RenoFi Renovation Loans, including home equity loans and refinance mortgages.
Unlike traditional home equity loans and mortgages, RenoFi Loans are a unique product that allows homeowners to borrow based on the After Renovation Value of their home.
Rather than purchase a larger home and move, homeowners can use these loans to finance major projects to transform their current house into something that meets their needs.
What makes these new renovation loans possible is RenoFi’s Renovation Underwriter, a proprietary platform that analyzes the renovation project and the contractors, before homeowners even reach the credit unions to apply.
This pre-application not only helps lenders vet homeowners and their projects, but it also allows homeowners to collect all necessary documentation and an appraisal so that it’s all ready to go for lending teams at the credit union.
Renovation financing is the largest untapped opportunity for credit unions to take advantage of as the housing and interest rate markets shift in the coming year. Now is the time to act.
For more information, visit https://www.renofi.com/credit-unions