Rates fall, refi applications soar

Mortgage rate blocks
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Mortgage applications experienced a significant overall increase of 16% last week, according to data released by the Mortgage Bankers Association on Wednesday.

An eye-popping surge in refi requests led the way, fueled by lower mortgage rates, says Joel Kan, the MBA's associate vice president of economic and industry forecasting.

"Refinance applications increased over 20% last week," says Kan, "aided by a 23% increase in conventional refinance applications. Also, there may have been a delayed spillover of applications from the previous week, when rates also decreased, but there was not much of a response in terms of refinance applications."

The average rate on 30-year fixed-rate mortgages fell last week from 2.98% to 2.90%, according to mortgage giant Freddie Mac.

Cheaper rates also may have contributed to an 8% increase in purchase loan applications last week.

"We continue to see ebbs and flows as housing demand remains strong but for-sale inventory remains low. However, lower rates may be helping some homebuyers close on their purchases, especially first-time homebuyers," Kan says.

Mortgage rates may not stay low for long

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The jump in refinance activity doesn't surprise Corey Burr, senior vice president at TTR Sotheby’s International Realty in Washington, D.C.

"Today’s consumers are super savvy, and they jumped at the opportunity to lock in a rate under 3%," Burr says.

Experts have been warning that today’s low mortgage rates, largely the result of the Federal Reserve’s efforts to keep the economy afloat during the pandemic, cannot last. With the U.S. economy on the road back from COVID, time is running out for borrowers to capitalize.

"Homeowners and buyers should not get too complacent thinking that 30-year rates will stay below 3%," Burr says. "They should act now to refinance, if it makes economic sense for them."

And what if rates do something surprising? "If the market presents another opportunity to refinance at even lower rates in the future, it would be wise to jump on another refinance at that point," he says.

Don’t sleep on today's low mortgage rates

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Despite the pandemic's record-low mortgage rates, 78% of eligible homeowners never refinanced their mortgages over the past year, a recent Zillow study found. If you’re still putting off refinancing your home, you could be missing out on some serious savings.

Once you’re ready to take out a new loan, check mortgage rates from at least five lenders. That way, you'll be more likely to find the best rate available in your area and for a person with your credit score.

You'll want to be seen as a low-risk borrower, which isn’t easy if you’ve accumulated hefty credit card balances and other high-interest debts. Taking out a debt consolidation loan can help you reduce both the number of payments you make each month and the amount of interest you're paying.

You’ll improve your cash flow and wind up carrying less debt — two things lenders like to see.

And don’t get down in the dumps if a refi isn't possible, because there are other ways to cut the cost of homeownership. When the time comes to buy or renew homeowners insurance, get quotes from multiple insurers and see if you can find a better price. You could save hundreds of dollars.

About the Author

Clayton Jarvis

Clayton Jarvis

Reporter

Clayton Jarvis is a mortgage reporter at MoneyWise. Prior to joining the MoneyWise team, Clay wrote for and edited a variety of real estate publications, including Canadian Real Estate Wealth, Real Estate Professional, Mortgage Broker News, Canadian Mortgage Professional, and Mortgage Professional America.

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