Mortgage demand falls despite rock-bottom rates

Miniature wooden houses and a red arrow down. The concept of lower mortgage interest rates.
Andrii Yalanskyi / Shutterstock

Overall mortgage applications slipped 1.7% last week compared to a week earlier, the Mortgage Bankers Association reported on Wednesday.

Both refinance and home purchase applications fell by 2% week-over-week. That was even though the average rate on a 30-year fixed-rate mortgage — the most common choice among U.S. borrowers — sank to 2.97%, the MBA says.

"Interest rates drifted lower globally last week, as markets assessed the latest concerns regarding the delta variant. Thirty-year mortgage rates dropped below 3% in our survey for the first time since this February, presenting an opportunity for many homeowners who have not yet refinanced to lower their rate and their payments," says Mike Fratantoni, MBA senior vice president and chief economist.

The drop in purchase applications is less than shocking considering the current lack of affordable properties for U.S. homebuyers in the wake of the country’s COVID real estate boom.

But the decline in refi activity is more surprising, and not just because of the drop in mortgage rates.

According to MBA calculations, the typical homeowner is now saving an additional $1,400 by refinancing, thanks to the Biden administration's elimination of a 0.5% refinance fee as of Aug. 1. The fee had been imposed late last year to offset the risk of COVID-related foreclosures and defaults.

What’s next for mortgage rates?

Confused
Khosro/Shutterstock

Just a few months ago, the nation’s COVID-19 vaccination drive appeared to be leading the country toward a relatively rapid recovery. Amid that optimism, the average for a 30-year fixed-rate home loan rose from a record-low 2.65% in early January to 3.18% by April, according to mortgage giant Freddie Mac.

Rates hovered around the 3% mark until July 1 — almost exactly when new COVID cases began rising. Then rates fell, particularly after regulators in mid-July announced the end of the refinance fee. Many lenders had been passing along the fee to borrowers through higher mortgage rates.

The lesson here is that today’s mortgage rates, because they are so low and so closely tied to the pandemic, are highly sensitive. While economic uncertainty can help keep rates low, the slightest whiff of economic improvement can send them higher from one day to the next.

“Homeowners must be vigilant about not missing the current opportunity to refinance if their existing rate is above 3.5%," says Corey Burr, senior vice president of TTR Sotheby’s International Realty in Washington, D.C. “If the spread of the delta variant slows and the economy continues to rebound, rates could jump quickly."

Predicting where rates will be next month, or even next week, is a guessing game — one you can easily lose. Expecting them to fall further right now is — well, let’s just call it "bold."

How to get the best deal on a refinance

Payday. Concentrated attentive millennial spouses sitting on couch at home discussing mortgage possibilities.
fizkes / Shutterstock

If you haven’t initiated the refinancing process even though you could slash your mortgage rate and monthly payment, you have plenty of company. Way too much, in fact.

Online real estate marketplace Zillow recently found only 22% of eligible homeowners refinanced their mortgages over the last year.

The savings can be considerable. A study released Monday by the mortgage data and technology firm Black Knight says 15.1 million current homeowners who haven't yet refinanced can save an average $298 a month by taking out fresh home loans.

To land the best refinance rate — one that will deliver the most savings — you’ll need to look your best as a borrower. That means:

  • Strengthen your credit score. The lowest mortgage rates tend to be offered to people with strong credit histories. Get a free peek at your credit score and see if you need to do anything to improve your score before you start presenting yourself to lenders.
  • Take control of your other debts. Even with a refi, lenders need to be confident in your ability to pay them every month. They don’t want to see that you're carrying multiple high-interest debts, like credit card balances. Consider rolling all of your debt into a single, lower-interest debt consolidation loan, so you’ll pay less interest, wipe out your debt sooner and strengthen your cash flow.
  • Shop around. When it’s finally time to approach lenders, don't apply only to the first one that claims to offer "the lowest rates around." They all say that. Compare refi offers from at least five lenders to find the best rate available in your area and to a borrower with your credit profile.

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.

You May Also Like

Title Fraud Can Mean the Loss of Your Home — Here’s How To Protect Yourself

Prevent scammers from stealing your biggest assets and demolishing your credit.

Looking to Protect Your Portfolio Against Inflation? Don’t Overlook Farmland

As a commodity-producing asset, farmland is an excellent hedge against inflation.

Sprucing Up Your Home? Don't Decorate Without This Money-Saving Secret

This 30-second trick can save you a surprising sum on any big project.

Here’s How to Find Better Deals When You Shop Online

There’s an easy way to automatically scan for lower prices, and it’s totally free.