Homeowners choose to pay more as demand for refinancing drops
Although mortgage rates remain historically low, US homeowners are once again pulling out of the refinancing market.
Mortgage refinancing and purchase requests fell last week, according to a weekly survey by a leading trade association in the mortgage industry.
A drop in purchase requests makes sense. With house prices rising and housing stock evaporating, the US real estate market is about as cutthroat as it has ever been.
Hold back a refi, however? It’s harder to figure out, especially if you plan to stay in your home for the foreseeable future.
Admittedly, mortgage rates are a little higher than in January, but they remain very attractive. And with the economy showing continuous improvement, it’s hard to imagine they shrinking much.
Refi activity slows down as holdouts settle in
Overall mortgage activity saw a weekly decline of 1.9%, according to the Mortgage Bankers Association survey for the week ending September 3.
Most of the decline was due to a drop in refinancing requests, which were down 3% week-over-week and 4% lower than a year ago.
Mike Fratantoni, senior vice president and chief economist at MBA, attributed the drop in demand to mortgage rates above what has proven to be a significant threshold for homeowners.
“The volume of mortgage applications fell last week to its lowest level since mid-July, as mortgage rates remained just above 3% for several weeks,” Fratantoni said in a statement.
But finding a rate below 3% will still be possible for many homeowners considering a refi. Mortgage giant Freddie Mac’s most recent mortgage rate survey found the average rate on a 30-year fixed mortgage to be just 2.87%. Some lenders offer much lower rates than this.
Higher rates are coming – maybe this year
Homeowners who expect the worsening COVID situation in the country to bring mortgage rates to an all-time high may be kidding themselves. On the contrary, they should be prepared for rates to start rising before the end of the year.
From June to August, COVID infection rates reached levels not seen since late January, when mortgage rates hit all-time lows. But mortgage rates haven’t taken the same plunge as at the start of the year.
After more than a year of adapting to the pandemic, the US economy is simply no longer strangled as it once was. Businesses don’t face another round of prolonged lockdowns, and Americans aren’t shy about going out in public and spending the money. Over the past three months, more than two million jobs have been created.
Once positive economic news becomes the norm, the Federal Reserve is expected to reduce the emergency measures it has used to stabilize the economy.
It is not expected to increase the federal funds rate, which impacts variable rate mortgages, until next year. But the Fed will likely start cutting back on its monthly mortgage-backed securities (MBS) purchases, which has led to low fixed mortgage rates during the pandemic.
“We expect further improvements will lead to a decrease in the Fed’s purchases of MBS by the end of the year, which should put upward pressure on mortgage rates,” Fratantoni said.
Get a good rate before it’s too late
Despite the ultra-low mortgage rates seen during the pandemic, 78% of eligible homeowners did not refinance their mortgages in the year ending April 2021, according to a recent survey by Zillow. Almost half of those who did saved $ 300 or more per month.
It is manner too much money to leave on the table.
If it’s time to consider a refi, keep in mind that lenders may not automatically offer you the lowest rate available. It usually takes a bit of effort on your part.
You’ll want to be seen as a low-risk borrower, which can be difficult if you have a pile of stubborn, high-interest debt. Taking out a debt consolidation loan can help you lower the overall amount of interest you pay and clear your debt faster.
Once you’re ready to refinance your mortgage, check the rates of at least five lenders. It should only take a few minutes and is an essential step in finding the loan that best fits your budget.
If a refi is not possible, there are other ways to reduce the costs of home ownership. When it comes time to buy or renew home insurance, for example, be sure to do a little comparison. It’s quick, easy, and could save you hundreds of dollars a year.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.