Mortgage applications are up, up, up, as homeowners try to save some of their hard-earned cash through refinancing their loans.
The number of mortgage loan applications surged 8.2% last week over the first week of the month, as interest rates fell on 30-year fixed-rate mortgages to lows between 3.74% and 3.83%, according to the Mortgage Bankers Association.
Refinance applications made up the bulk of the total applications, rising to 64.3% from 61.2% the week earlier. The numbers are adjusted to compensate for normal seasonal variations.
“Refinance applications are extremely sensitive to rates,” Mike Fratantoni, the trade group’s chief economist, said in a statement. “With rates falling to their lowest level in over a year, there is no surprise that refinance applications would increase.”
Even small rate changes can amount to appreciable savings for homeowners. For example: Shaving just half a percentage point off the interest of a $200,000 30-year-fixed-rate mortgage could, in some cases, save a homeowner about $56 a month, says Matt Graham, chief operating officer at the publication Mortgage News Daily.
Average interest rates for 30-year fixed-rate mortgages for loan balances of $417,000 or under fell to 3.83%—their lowest levels since April 2015, according to the association. Interest rates for loans of more than $417,000 fell to 3.74%, the lowest they’ve been since December 2012.
Meanwhile, average rates for 15-year fixed-rate mortgages dropped to 3.11%, while for 5/1 adjustable-rate mortgages (for which the rate is locked in for the first five years, then reset each year) the initial rates fell to 2.92%, according to the association.
Rates are actually lower now than after the Federal Reserve raised them a quarter of a percentage point in December, says mortgage lender Elysia Stobbe of NFM Lending in Jacksonville, FL. “That’s pretty ironic.”
But just because interest rates are down doesn’t mean homeowners should race to refinance, she says. Stobbe recommends that those looking to save a few bucks seek out a licensed financial professional to review their current situation.
Closing costs on the refinancing—which in extreme cases can top $10,000—can sometimes eat up any potential savings.
“It’s not a simple science,” says Stobbe, the author of “How to Get Approved for the Best Mortgage Without Sticking a Fork in Your Eye” (really!). “Closing costs for a refinancing vary in every city and state and depend on the price of the loan and the size of the loan.”
Homeowners should also consider how long they plan to stay in their houses, Stobbe says. If they plan to move within two years, they might wind up losing money because of those pesky closing costs.
Those interested in refinancing shouldn’t wait, though, warns Mortgage News Daily’s Graham. He’s already seeing interest rates start to rise.
“Consumers who think they might want to take their chances should always make a game plan with their mortgage professional of choice and understand that lenders can change rates before they have time to lock,” he says.
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