Mortgage rates that keep falling to fresh record lows have finally gotten the attention of homeowners — and in a big way.
Applications for refinance loans are surging as more owners heed the advice that they can potentially save hundreds of dollars a month by trading in their existing mortgages for new ones with sharply reduced rates.
Lenders are receiving more than twice as many refi loan requests as they were last year at this time, a trade group says.
Homeowners race to refi
Overall mortgage applications increased 5.1% in the week ending July 10, led by a 12% surge in demand for refinance loans, the Mortgage Bankers Association, or MBA, said Wednesday. Refinance requests soared 107% from a year ago.
The spike in refi applications came as mortgage rates sank to new all-time lows in multiple surveys. The MBA says its data shows the average for a 30-year fixed-rate mortgage plummeted to a record 3.19%. Rates have fallen dramatically since late March, when the average was 3.82%.
Separate surveys show rates on 30-year loans are looking even better : averaging 2.98%, says mortgage company Freddie Mac; and as low as 2.89%, on average, according to Mortgage News Daily.
"The drop in rates led to a jump in refinance activity to the highest level in a month, with refinance loan balances also climbing to a high last seen in March," says Joel Kan, the MBA's associate vice president of forecasting.
Mortgage rates have been diving as America's growing coronavirus disaster has prompted investors to load up on Treasury bonds to keep their money relatively safe. Bond prices have risen, their interest rates have tanked, and rates on home loans have done the same.
Refinancing is often a no-brainer
More than 16 million homeowners are saddled with mortgages approaching 4% and could slash their monthly payments by an average $283 through refinancing, the mortgage data firm Black Knight recently reported.
"A mortgage refinance can offer a lower payment which is attributed to extending the term back to 30 years, a lower principal balance than the original loan and a lower interest rate," says Jerry Anderson, vice president of residential lending at Alliant Credit Union.
According to Black Knight, you're a good refi candidate if you've got a 30-year loan, could lower your mortgage rate by at least three-quarters of 1 percentage point (0.75), have a credit score of 720 or higher, and have at least 20% equity in your home, Black Knight says.
It's possible to score a refi rate under 3%, Anderson says, but you'll need to meet credit, equity and income requirements — and have good timing.
"The sub-3% rate you see today may not be there tomorrow. Mortgage rates are influenced by the United States and world economy. Federal Reserve actions and news that may be detrimental to the immediate or future economy impact the rates, which can change daily," he says.
To get the lowest rate available to you, it's essential to shop around. Get refinance offers from at least three lenders and compare them to find your best deal.
Homebuyer borrowing slows
Refinance applications jumped to 64.2% of all mortgage activity last week, the MBA says, from 60.1% a week earlier.
That was as requests for loans to buy homes dipped 6%.
"Purchase applications fell over the week but remained 15% higher than a year ago," Kan says. "Purchase activity remains relatively strong, despite the continued economic uncertainty and high unemployment caused by the ongoing pandemic."
Homebuyers have come back into the housing market "in a flood," but many sellers remain wary of putting their houses on the market during the current health crisis, says Danielle Hale, chief economist for Realtor.com.
"This imbalance has created competitive market conditions for buyers and pushed home prices higher, up 6.2% in our most recent weekly data," Hale says.
If you're house hunting and are lucky enough to find something in your price range, you'll to comparison shop for your loan, too — so you'll score a rock-bottom mortgage rate that will reward you with major monthly and lifetime interest savings.
Take a similar approach when the time comes to buy your homeowners insurance. Go online, get several home insurance quotes, and review them side-by-side to land the right coverage at the right price.