Low Interest Rates Spur More Refinancing Activity

Even more favorable rates have unleashed a fresh wave of refinancing activity in recent months.

Borrowers have been enjoying a low interest rate environment for some time. Yet the further drop in interest rates this year has stoked a surge in refinancing activity.

The Federal Reserve kicked off the first of three rate cuts in late July, which subsequently pulled commercial real estate lending rates lower in the third quarter. Notably, the 10-year Treasury dropped by 50 basis points in August to a near cyclical record low of 1.47 percent. The favorable rates have unleashed a fresh wave of refinancing activity. “You are seeing a lot of borrowers paying off loans early to take advantage of the low rates,” says Peter Norrie, managing director, capital markets, at Cohen Financial in Portland, Ore.

For example, some of the 10-year loans that were done seven years ago were done at 5.5 percent, whereas borrowers now have an opportunity to refinance at sub-4 percent. So, the math on that works very well for some borrowers, even if they have to pay a penalty for an early exit, notes Norrie.

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