Mortgage prepayment rates have risen to their highest level since before the subprime crash as homeowners continue to refinance while borrowing costs hover at or near historic lows. According to a report by Lender Processing Services, prepayments are at their highest rate since 2005. At the rate domestic mortgages were paid in August, the entirety of U.S. home loan debt would be rewritten or paid off in about four years.
The cost of a 30-year loan fell to 3.4 percent last week, after the Federal Reserve announced it would buy $40 billion worth of mortgage securities per month in an effort to stimulate the economy. Lower rates will influence borrowers to refinance, and some mortgage holders that refinanced in the last two years are likely again refinancing if they have the credit and terms to do so. Prepayment speeds are also affected by retiring mortgages through existing home sales as well as borrower default.
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