Homeowners catch the refi wave

Happy girl launching kite together with father
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Homeowners are finding great opportunities to refinance.

Overall mortgage applications rose 5% in the week ending Jan. 31, the Mortgage Bankers Association said Wednesday.

The increase was led by homeowners' hunger for refinance loans. Refi applications surged 15% last week to the highest level since June 2013, and they were coming in at nearly three times the rate seen a year ago.

Mortgage rates fell last week for the fifth time in six weeks, notes Joel Kan, the vice president of forecasting for the Mortgage Bankers Association.

"Refinance activity jumped as a result, with an increase in the number of applications and a spike in the average loan amount, as homeowners with jumbo loans reacted more resoundingly to lower rates," Kan says.

Homeowners are still finding opportunities to save by refinancing, even if they closed on their current mortgages as recently as 2018.

Refinance applications amounted to 64.5% of all mortgage activity last week, up from 60.4% the previous week. The data firm Black Knight has estimated that 9.4 million American homeowners could save an average $272 a month by doing a refi.

The calculator below shows how you can slash your monthly mortgage payment by refinancing into one of today's low mortgage rates.

Homebuyers pull back on borrowing

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Homebuyers are having trouble finding homes they want.

Mortgage rates have been sinking as investors flock to the safety of Treasury bonds out of concern that the coronavirus will hurt the Chinese and global economies, says Kan. As demand for Treasuries goes up, their yields (interest rates) go down, and mortgage rates tend to tag along.

Thirty-year fixed-rate mortgages last week were averaging 3.51% — close to a three-year low and the lowest ever for late January in the nearly 50-year history of the weekly rates survey from mortgage company Freddie Mac.

Rates on 15-year fixed-rate mortgages fell last week to an average 3%, from 3.04% a week earlier. Those loans are popular refinance choice. One year ago, the 15-year average was 3.89%.

The average initial rate on a 5/1 adjustable-rate mortgage dropped to 3.24%, from 3.28% a week earlier and down considerably from last year's 3.96%. ARMs, as those loans are known, are fixed for five years, and after that the rates can adjust up or down each year.

No matter how attractive they are, low interest rates aren't much help to Americans who want to buy a home — maybe their first home — but don't see anything to their liking, or in their price range.

Kan says that helps explain last week's 8% dip in applications for mortgages to buy homes.

"Prospective buyers weren't as responsive to the decline in mortgage rates — likely because of suppressed supply levels. Purchase applications took a step back, but still remained 11% higher than a year ago," he says.

Current average mortgage rates

Loan Type Interest Rate
30-year fixed-rate mortgage 3.26%
15-year fixed-rate mortgage 2.73%
5/1 adjustable-rate mortgage 3.17%
Source: Freddie Mac Primary Mortgage Market Survey, May 7, 2020.

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The outlook for mortgages and housing

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Mortgage rates are expected to stay down this year.

Freddie Mac releases a fresh mortgage rates update on Thursday. Kan says his data indicates rates have hit their lowest spot since October 2016.

Homebuyers and homeowners are likely to find exceptionally low mortgage rates throughout this year. A forecast from Freddie Mac's corporate sibling, Fannie Mae, predicts 30-year mortgage rates will average just 3.7% in 2020, down from 3.9% last year.

Even with the crunch of homes on the market, irresistible mortgage rates are helping to pump up home sales. Sales of existing U.S. homes climbed 3.6% from November to December and hit a two-year peak, and sales of new homes last month shot up 23% from a year earlier.

Builders are struggling to keep up with the demand for houses. New construction surged almost 17% last month to a 13-year high.

Check out today's best mortgage rates where you live.

About the Author

Doug Whiteman

Doug Whiteman

Editor-in-Chief

Doug Whiteman is the editor-in-chief of MoneyWise. He has been quoted by The Wall Street Journal, USA Today and CNBC.com and has been interviewed on Fox Business, CBS Radio and the syndicated TV show "First Business."

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