Many homeowners know a good deal when they see one.
The demand for refinancing mortgages is rising enormously, according to a study by a large trade association of lenders. Homeowners are rushing toward mortgage rates that have been driven back to historic lows amid concerns over the Delta variant and the elimination of a widely despised fee on refi loans.
But American homeowners still leave a lot of money on the table. Online real estate marketplace Zillow recently found that: only 22% of eligible homeowners refinanced their home between April 2020 and April 2021, despite historically low mortgage rates.
If you’ve put off refinancing, you’re in luck – because the very cheap mortgage rate is back.
Mortgage applications are recovering due to strong demand for refinancing
Mortgage applications rose by 5.7% last week, according to the Association of Mortgage Banks reported on Wednesday. It was a healthy increase from the week before, when the number of applications fell by 4%.
With homeowners-seeking “purchase” loan applications down 2% last week, the overall increase in mortgage demand was driven primarily by refinancing requests. Refinancing activity increased by 9% compared to a week earlier.
“Refinancing applications jumped as the 30-year fixed mortgage rate fell to its lowest level since February 2021,” said Joel Kan, the MBA’s forecaster. “With over 95% of refinancing applications for fixed-rate mortgages, borrowers want to secure a lower rate for the duration of their loan.”
Homeowners stormed the refinancing market when the average interest rate on a 30-year mortgage fell to 2.78% last week, not far from its record low of 2.65%, according to the long-run. survey by mortgage giant Freddie Mac.
Refi loans accounted for 67.2% of all mortgage activity last week, much more than 64.9% the week before.
Why mortgage interest rates are falling
Mortgage rates have fallen as many lenders stop charging 0.5% refinancing fees in their borrowing costs. Now that the fee is becoming history, refinancing is an even better deal than before.
Regulators have announced that the pandemic-related “adverse market compensation” on refi loans, introduced late last year, will officially end on August 1.
Interest also tracked the sliding yield, or interest rate, on the Treasury’s 10-year bond. The recent uncertainty injected into the economy by an increasing number of COVID-19 cases in the Delta variant has had a predictably negative effect on investors – and on 10-year yields.
With the CDC reporting that less than half of the U.S. population has been fully vaccinated against COVID, the cloud hovering over the economy may be darkening. New infections in the US rose throughout the month, reaching more than 108,000 as of July 27.
The last time they were this high, on Feb. 9, the average interest rate on a 30-year mortgage was 2.73%, almost identical to what it is today. As the pandemic has shown, bad COVID news usually leads to good news for refinancers.
“As rates fall below the key 3%, more opportunities arise for homeowners,” said Corey Burr, senior vice president of TTR Sotheby’s International Realty in Washington, D.C.
How to get the best mortgage rate
If you own a home and haven’t refinanced yet, you’re probably paying too much. Zillow found that homeowners who did take out new loans in the past year saved $300 or more per month.
But even though mortgage rates have fallen, lenders don’t necessarily feel obligated to offer you the lowest interest rate available. Scoring a good price on a refi usually requires a little effort on your part.
The mortgage market is extremely competitive, so don’t jump to the first attractive offer you see. Check the mortgage rates of at least five lenders to compare your options and find the loan that best suits your budget.
But be warned: it will be difficult to get a low interest rate if you have multiple high-interest debt. Payments to multiple creditors can ruin your home buying plans, so consider closing a debt consolidation loan with a lower interest rate. You lower your interest costs and get rid of your debt faster.
If refinancing your mortgage doesn’t seem like the right move, you have other ways to lower the cost of homeownership. When it comes time to buy or renew homeowners insurance, request quotes from multiple insurers can save you hundreds of dollars.
That same shopping comparison approach can help you too pay less for car insurance.