WASHINGTON, May 8 (UPI) -- It appears that the long refinancing boom may be coming to an end.
According to the monthly Cambridge Consumer Credit Index from a survey released Friday, only 8 percent of Americans plan to refinance their mortgage in the next year, down 50 percent from the 16 percent who anticipated refinancing 18 months ago in October 2002. Cambridge asked respondents about refinancing as part of a monthly "wild card" question in the firm's regular survey.
Each month the index chooses a different wild card question based on top economic news with the latest question chosen in light of the U.S. Federal Reserve indication on Tuesday that the key U.S. lending rate -- the fed fund rate -- may soon begin to creep up from its historical low of 1.0 percent where it has stood since last June. The key rate indirectly affects other lending rates such as mortgage rates.
Of those surveyed, 35 percent said they have refinanced in the past two years, up from 24 percent who had done so in 2002. Also, 57 percent of respondents said they have not refinanced and have no intentions of doing so, down slightly from 60 percent in 2002.
The Cambridge Consumer Credit Index survey also asked respondents who were refinancing what they planned on doing with the money saved from refinancing. The largest percentage, 30 percent, planned to use the money to pay off non-credit card debt such as car and student loans. Twenty-three percent of the respondents planned to increase their savings, 22 percent planned to spend the money on home improvements, cars or other major purchases, and 10 percent expected to use the proceeds to pay off credit card debt.
An additional 15 percent said they planned to use the money in other ways.
"The results of the Cambridge Consumer Credit Index wildcard question show clearly that the refinancing boom which gave consumers billions of dollars in additional spending power is rapidly waning," said Jordan Goodman, spokesperson/financial analyst of the index. "Compared to a year and a half ago, fewer Americans are putting the proceeds from refinancing into bank savings accounts and more of them plan to pay off credit card debt and other loans. With fewer refinancings anticipated in coming months, fewer consumers will be able to pay off their credit card and other debts or add to savings."
The Cambridge Consumer Credit Index is a forward-looking economic indicator gauging consumer spending and debt. It is produced monthly by the Cambridge Credit Counseling Corp., an Islandia, N.Y.-based debt-counseling firm.
The overall index rose by 9 points in May to 68. A higher index number means more acquisition of debt, while a lower number means less acquisition of debt. The index rose in all three of its component questions.
The index number is a composite of these three questions:
-- In the past month, have you taken on more debt or paid off debt? The index reads 68 on this question, a jump of ten points from April. Of those polled, 35 percent of Americans say they have taken on more debt, with 20 percent taking on a little and 15 percent taking on a lot more debt. Conversely, 66 percent of Americans have paid off debt, with 46 percent paying off a little and 20 percent paying off a lot.
-- In the next month, do you anticipate taking on more debt or paying off debt? The index reads 52 on this question, up by sixteen points from April. From May, 26 percent plan to take on more debt, with 9 percent planning to take on a lot and 16 percent planning to take on a little debt. Conversely, 74 percent plan to pay off debt, with 58 percent paying off a little and 17 percent paying off a lot.
-- In the next six months, do you expect to take on debt because you are thinking of making a major purchase such as a car, education, appliance, medical procedure, furniture or carpeting? The index reads 84 on this question, up by two points from April.
Of those polled, 42 percent said they plan to take on more debt to make such purchases, with 15 percent taking on a lot of debt and 27 percent taking on a little more debt. In contrast, 58 percent respondent plan to pay off debt in the next six months, with 41 percent expecting to pay off a little and 17 percent expecting to pay off a lot.
"The results of the Cambridge Consumer Credit Index indicate that consumers have been taking on and plan on taking on even more debt at a rapid rate. All three questions remain well above their long-term averages. The next six-month level of 84 hit an all-time high for the third straight month, showing that consumers plan to make many major purchases with credit over the next few months," Goodman said. "On one hand, this surge in the index shows growing consumer confidence in the ability to repay debt. However, most of the increase in new debt is being taken on by lower-income Americans, who usually borrow because they need to pay their existing bills, not because they are spending on major new purchases."
The index survey is conducted by International Communications Research of Media, Pennsylvania over five days in the week before the index is released. Over 1000 households are polled based on random-digit dialing, with all demographic and regional groups in America fairly represented. The index has a margin of error of plus or minus three percentage points.