Borrowers shrug off low rates

Overall mortgage applications declined 2.9% in the week ending Sept. 11, led by a 4% dip in refinance requests, the Mortgage Bankers Association, or MBA, reported on Wednesday.

Demand for "purchase loans," to buy homes, slipped 1%.

Borrowing stalled last week even though the MBA says rates on 30-year fixed-rate mortgages held steady at an average 3.07%, which is just a notch above an all-time low.

Meanwhile, a rival survey— from mortgage company Freddie Mac — showed 30-year rates did plunge to a record-low average last week, at just 2.86%.

Compared to a year ago, the volume of refinance applications is up 30%. But the slowdown in refinancing from earlier in the month suggests homeowners may have gotten spoiled by mortgage rates that have fallen steadily during the coronavirus crisis.

"With the flurry of refinance activity reported over the past several months, demand may be slowing as remaining borrowers in the market potentially wait for another sizeable drop in rates," says Joel Kan, the MBA's forecaster.

Literally millions of owners may be playing that waiting game. An estimated 19.3 million mortgage holders could reduce their mortgage rates by at least three-quarters of 1 percentage point (0.75) via refinancing — and save an average $299 a month, the mortgage data firm Black Knight has reported.

Why rates are more likely to rise than fall

A positive housing market concept and graph
Tyler Olson / Shutterstock

But waiting for rates to go even lower is a risky game to be playing.

A more likely scenario is that rates will go higher as lenders price in a new 0.5% fee on refinance loans.

Freddie Mac and Fannie Mae — government-sponsored mortgage giants that buy or back most U.S. home loans — say they need to start charging the fee to offset losses from defaults and other issues they're facing due to the pandemic.

The surcharge could push up mortgage rates by one-eighth to one-quarter of 1 percentage point (0.125 to 0.25), predicts Matthew Graham, chief operating officer of Mortgage News Daily (MND).

For borrowers who don't start shopping around soon, small increases like those could translate to tens of thousands of dollars in additional costs over the life of a 30-year mortgage.

Graham says rates are already starting to rise: MND's survey shows 30-year rates jumped on Tuesday from 2.88% to 3.03%, on average.

The fee officially takes effect Dec. 1 (postponed from Sept. 1), but experts have said it's likely to have an impact on mortgage rates much earlier.

What would-be refinancers should do

With higher rates looming, it's time for homeowners who've been procrastinating to get on with refinancing.

You're considered a good refi candidate not only if you could dramatically lower your mortgage rate, but also if you've got a solid credit score and at least 20% home equity (the share of your home's value that you've paid off).

To find the lowest rate available where you live and for a person with your credit profile, get mortgage offers from several lenders and compare them side by side.

You'll want to look at a minimum of five rate quotes. A Freddie Mac study found that a borrower who shops around to five lenders pays an average of about $3,000 less over time than someone who seeks out only one loan offer.

Once you find something that works, submit your mortgage application and request a rate lock — so you won't be out of luck if rates go up.

Keep your comparison shopping skills in your back pocket for when the time comes to renew your homeowners insurance. Check rates from multiple insurers to make sure you're not overpaying for your coverage.

Take a look at today's top mortgage rates where you are:

About the Author

Doug Whiteman

Doug Whiteman


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

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