Mortgage rates have receded back below 3%, but that hasn't been enough to entice homeowners or house hunters into the mortgage market. Applications for both refinance and home purchase mortgages fell last week, according to a new report from a major mortgage industry trade group.
A scorching, undersupplied real estate market is contributing to the decrease in purchase applications, but homeowners holding off on refinancing don’t really have a comparable excuse.
With the typical mortgage rate still historically low, over 14 million homeowners have opportunities to save an average $287 a month with a refinance, the mortgage technology and data provider Black Knight recently said.
Both the field of refi candidates and the average savings will inevitably start shrinking once mortgage rates climb back to their pre-pandemic levels.
Mortgage demand dips, despite low rates
Mortgage applications experienced an overall decline of 1.8% last week, according to data released by the Mortgage Bankers Association on Wednesday. It was the second week in a row in which applications for both refinance and purchase mortgages fell, and it marked the lowest level of application activity since the beginning of 2020.
After dropping 8% in the MBA’s previous survey period, refinance applications shed another 2% last week. That’s despite the average rate on a 30-year fixed rate mortgage — the most popular mortgage product in the U.S. — falling to 2.98% last week, according to mortgage giant Freddie Mac. (This week, it's down to 2.90%.)
Rather than signaling the end of America’s refinance boom, the dip in refi demand is more of a seasonal phenomenon, says Maria Fregosi, chief investment officer with mortgage lender Homepoint Financial.
"It was a holiday week," Fregosi says. "We usually see lower applications as people focus on other activities. We expect to see an uptick in applications this week."
There may also be some market fatigue at work, says Corey Burr, senior vice president at TTR Sotheby’s International Realty in Washington, D.C.
“Millions of Americans have refinanced or purchased in the last 15 months at rates very close to current rates," Burr says. "Jockeying the market to save an eighth or a quarter of a point is not a priority right now."
Borrower beware: Higher mortgage rates ahead
Saving a fraction of a percent may not be a priority for homeowners if they expect rates to continue hovering around historic lows for the foreseeable future, but that's probably not going to happen.
"If the 30-year fixed drops to 2.5% or 2.625%, that will lead to a new wave of refinances," Burr says, "but don't bet on it, as the improving economy will put upward pressure on rates. The thought that rates will drop significantly below 3% is wishful thinking."
Recent signs of a recovering economy, like last week's report of stronger-than-expected in hiring in June, have not pushed mortgage rates higher. The yields (interest) on Treasury bonds have fallen, taking fixed mortgage rates with them. Fregosi expects rates to remain below 3% until the 10-year Treasury yield starts improving.
That may not take long.
"If we continue to have inflation fears, you will see the benchmark Treasury rate go up, and mortgage rates go up too," she says.
Because of the looming increases in rates, Fregosi says homeowners should consider refinancing sooner rather than later.
"Rates are low and mortgage companies are not at the capacity levels they were at during the pandemic, so service levels are also high," she says. "Assuming you plan to stay in the house long enough to cover the closing costs, refinancing makes sense now."
Snag a low refi rate while you still can
Despite the pandemic's ultra-low mortgage rates, 78% of eligible homeowners did not refinance their mortgages in the year ending April 2021, a recent Zillow survey found. If you've put off taking out a new home loan, you could be leaving a lot of money on the table.
Once you finally decide to refinance your home, you’ll want to check mortgage rates from at least five lenders to find a loan that fits your budget.
But note that a lender may not automatically offer you the lowest interest rate available. That usually requires a little bit of effort on your part.
You'll want to be seen as a good risk — which can be tough if you’ve got a pile of high-interest debt. Taking out a debt consolidation loan can help you reduce both the number of payments you make each month and the amount of interest you're paying.
You’ll erase your debt faster and improve your cash flow, two things lenders like to see.
Don’t get too down if a refi isn't possible, because you have other ways of cutting the cost of homeownership. When the time comes to buy or renew homeowners insurance, for example, make sure you get quotes from multiple insurers. It’s quick, easy and could save you hundreds of dollars.