As mortgage rates edge higher, many homeowners make a risky bet
Whether it’s because of slightly higher mortgage rates or the allure of taking their first actual summer holidays in two years, U.S. homeowners have stepped away from the refinance market.
A survey by the country’s largest mortgage trade association shows applications for both refinance and purchase mortgages have declined, with demand for refi loans falling considerably.
If homeowners are betting the COVID delta explosion will push mortgage rates back to record lows, that's risky. It took only one encouraging economic report to give rates an upward jolt last week.
Today’s rates, which are still historically and enticingly low, may be as good as it's going to get. Here's why.
Rates zip, demand dips
For the week ending Aug. 13, mortgage applications fell 3.9% compared to the week before, the Mortgage Bankers Association reported on Wednesday. It was the biggest weekly decrease in mortgage demand since July 21, when overall application activity slid 4%.
Leading last week's decline was a significant drop in refinance applications, which fell 5% from the previous week. They were down 8% from the same week a year ago.
Joel Kan, the MBA’s associate vice president of economic and industry forecasting, pins the refi dip to a rise in mortgage rates.
"Mortgage rates were at their highest levels in around a month, with the 30-year fixed rate increasing above 3% to 3.06%" in the MBA's weekly survey, Kan says.
The number of applications for the purchase loans used by homebuyers went down by a more modest 1%, as high home prices and limited supply continued to put up barriers for first-time buyers hoping to wade into the country’s housing market.
Don't expect a return of 'peak COVID' mortgage rates
If you’re a homeowner putting off a refi because spending time with your family — you know, around other human beings — is your No. 1 priority this summer, that’s something no one can fault you for. Enjoy yourself.
But if you're holding out simply because you think you’ll have a chance to find a better rate than what's available today, don't bet on it.
Consider that Kan attributes the recent increase in mortgage rates to the better-than-expected July jobs report that the government released on Aug. 6. As even more evidence of America’s economic recovery presents itself, rates could tick up faster.
It’s also important to keep in mind that the ultra-low mortgage rates homeowners have been enjoying for much of the last 18 months may never have materialized without the widespread lockdowns that erased the incomes of millions of businesses and individuals.
Even with the delta variant of COVID stampeding across the U.S., there's been no indication new lockdowns or stay-at-home orders will be coming. If the economy's open, it has the potential to grow. And when the economy's on the rise, interest rates tend to follow suit.
A refi can still be a financial game changer
Even with rates inching up, a refinance can still save eligible homeowners a pile of money.
A recent survey by digital real estate platform Zillow found almost half of U.S. homeowners who refinanced between April 2020 and April 2021 saved $300 or more per month.
And, much of that 12-month period featured higher rates than today's, according to data compiled by mortgage giant Freddie Mac.
With significant savings still possible, here are a few steps you can take to ensure your lender offers you the best rate when it’s time to pull the trigger on your refi:
Improve your credit score. The best rates tend to be offered to borrowers with the most impressive credit histories. Get a free look at your credit score and see where it falls on the lousy/solid/excellent spectrum. Whipping your score into better shape before you apply for a refi could help you score a sweeter deal.
Wipe out nagging high-interest debt. Lenders see large amounts of high-interest debt, like credit card balances, as a red flag. If you owe money to multiple high-interest creditors, consider rolling those debts into a single, lower-interest debt consolidation loan. You’ll pay less in interest and eliminate your debt sooner.
Find the best mortgage rate. Never apply for a home loan simply because the lender claims to offer "the lowest rates available." Guess what: They all say that. Instead, gather and compare at least five refinance offers to boost your chances of discovering the best rate for your area and for a person with your credit record.
Once you've locked in a low refi rate, don't let the savings stop there. When your homeowners insurance policy comes up for renewal, shop around — because you might a competing insurance company offering your current coverage at a much lower price.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
