Refi demand goes cold

Image of a thermometer with pretty colors of fall in the background
txking / Shutterstock

For the week ending Oct. 1, mortgage activity fell 6.9% from the previous week, the Mortgage Bankers Association (MBA) reported on Wednesday. The decline was led by refinances, which tumbled about 10% from the previous week and 16% from a year earlier.

In fact, the refi share of mortgage activity fell to 64.5% of all applications, down from 66.4% a week earlier, the report shows.

"Higher rates are reducing borrowers' incentive to refinance as declines were seen across all loan types," says Joel Kan, the MBA's vice president of forecasting.

Overall mortgage demand fell to its lowest level in three months, while the average 30-year mortgage rate increased in the trade group's weekly survey from 3.10% to 3.14% — the highest since July.

Still, mortgage rates are lower than they were pre-pandemic. And while more than three-quarters of homeowners did not refinance to take advantage of cheap rates during the first year of the crisis, almost half who did are now saving $300 or more each month, according to a study from Zillow.

Homebuyers also take a step back

Applications for mortgages to buy homes also have fallen, though not as steeply. The volume of "purchase applications" was down 2% from a week earlier, the MBA says.

Recent dips in purchase loans have resulted, in part, from soaring home prices and a limited supply of properties for sale. But price spikes are expected to moderate as mortgage rates rise, says Realtor.com senior economist George Ratiu.

"Price pressures remain contained as we move into October, an indication that the frenzied pandemic pace from earlier this year is behind us," Ratiu says.

Meanwhile, mortgage rates have jumped in the days since the Federal Reserve announced late last month that it would scale back its buying of mortgage-backed securities and Treasury bonds, Ratiu points out. Those efforts have been helping to keep rates low.

Lenders adjust rates up

Residential buildings and easel with a positive growth trend red arrow up chart. Rising interest rates.
Andrii Yalanskyi / Shutterstock

While the road to recovery has been uneven, signs the U.S. economy is continuing to improve are likely to keep today’s low mortgage rates moving in one direction: up.

It's not just the MBA observing higher rates. The average interest on a 30-year fixed-rate mortgage surged from 2.88% to 3.01% last week in the 50-year-old survey from mortgage giant Freddie Mac.

Mortgage News Daily on Wednesday reported a 30-year average rate of 3.13%. Mortgage rates began the week relatively steady, but the market for Treasury bonds — which dictates daily rates — weakened, and pushed rates higher, writes Matthew Graham, MND's chief operating officer.

"When bonds lose enough ground in the middle of a trading day, mortgage lenders occasionally make mid-day adjustments to their rate offerings," Graham says.

Lock in a low rate now

African black positive married couple sitting on sofa at home looking for a low mortgage rate.
fizkes / Shutterstock

If you’ve been waiting to refinance because you think rates might retreat, those days are likely in the past. Homeowners who qualify now could potentially save hundreds of dollars a month — money that could go toward your credit card balances or paying off other high-interest debt.

Your newfound savings might even be used to invest in the stock market.

To kick off the refi process, check rates from at least five lenders, because shopping around is the most reliable way to get the best deal on a refinance loan.

The lowest rates go to borrowers with strong credit scores. If you haven’t seen your score in a while, take a look — which you can easily do for free — to see if it needs some work before you start submitting loan applications.

And if you’re not able to refinance, there are other ways to cut the cost of homeownership. When your homeowners insurance policy comes up for renewal, be sure to gather quotes from multiple insurers. You could be missing out on savings there, too.

About the Author

Nancy Sarnoff

Nancy Sarnoff

Freelance Contributor

Nancy Sarnoff is a freelance contributor with MoneyWise. Previously, she covered commercial and residential real estate for the Houston Chronicle where she also hosted Looped In, a podcast about the region’s growth, development and economy. Her work has been recognized by the National Association of Real Estate Editors and the Society of American Business Editors and Writers.

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