Refinance Applications Are Up - And Rates are Slightly Up
Mortgage applications shot up by 48% last week, and the majority of those were refinance applications made by homeowners trying to get a better rate. If you’ve been watching the news lately, you know the primary reason for the rise in refinancing applications — falling interests rates.
As a result of the Fed’s unprecedented move to lower their key interest rate (to practically nothing), the interest rates offered by lenders continue to drop as well. For many homeowners, this could mean big savings over the life of a new loan. Hence the reason mortgage refinance applications are skyrocketing right now.
As of last week, many people were refinancing into fixed-rate loans with interest rates in the low 5% range. Talk about a nice holiday gift! But the latest news seems to suggest that some lenders are raising their offered interest rates slightly, because they are having trouble keeping up with the surge of mortgage refinance applications that have been pouring in. In the lending industry, it’s not uncommon for lenders to raise their rates “throttle back” on their application volumes … at least until they have caught up. This seems to be what’s happening right now.
Regardless, if you have a mortgage loan with a current rate in the 7% range or higher, this could still be a good time to refinance your home — regardless of the minor ups and downs of the market.
Should I Submit a Refi Application Right Now?
If you’re reading this blog, you’re probably wondering if now is the time to submit that refi application you’ve been thinking about. Here are some of the key considerations you should make:
1. Do you currently have an ARM loan?
If you have an adjustable mortgage, you seriously consider refinancing your ARM into a fixed-rate loan. With the low interest rates being offered by most lenders today, this produces a double-win in many cases. You can secure a better rate on the new mortgage, while removing the uncertainty of the ARM loan at the same time.
2. How much would you lower your rate?
If you already have a great interest rate on a fixed mortgage, you might want to think twice about submitting that refinance application … at least until you determine the cost of your refi. Generally, this means a rate difference of at least a percentage point. But even if you could cut your rate by more than a point, you still need to run the numbers to determine your full savings versus closing costs.
3. Are you staying put for a few years?
If you plan to keep your current home for many more years, then you’re more likely to benefit from a refinance. Remember, you have to stay in the home (and hold the new mortgage) for a certain period of time to get any savings out of it. This is known as the “break-even point.”
4. How much equity do you have right now?
The problem for many homeowners right now is that they are upside down in their mortgages. This means they owe more than their home is worth in the current market. If you have less than 20% equity in your home right now, then you’ll probably have to get private mortgage insurance (PMI) on your new loan, after the refi. This adds even more onto the cost of refinancing, which cuts into your savings.
So let’s assume that (A) you’re paying a couple points more on interest than the “going rate” right now, (B) you have more than 20% equity in your home, (C) you’re going to stay in the home for many more years, and (D) your credit score is in great shape. If you have these things going for you, this might be a great time to submit a mortgage refinance application to get the ball rolling.
Of course, you’ll still have to weigh the cost of the refi against the money you’ll save with the lower rate, to see if it makes sense. But you’ve got nothing to lose by putting in the refinancing application to get some offers! You can do this from the refinance quotes section of our main website.
Filed under: Refinancing Rates