Demand for mortgages is slumping, even as mortgage rates have tumbled to another record low, a new report shows.
Mortgage applications are down, led by a dip in refinance requests. Experts suggest homeowners are holding back on refinancing because the rates on refi mortgages aren’t falling as sharply as the rates on homebuyer loans.
That may be evidence that a new refinance fee is being passed along to consumers in the form of higher refi rates.
Rates drop, but so do mortgage applications
Mortgage applications fell 4.8% in the week ending Sept. 25, with demand for refinance loans dropping 7%, the Mortgage Bankers Association, or MBA, reported Wednesday. Refi loans also decreased to 63.3% of total mortgage applications, from 64.3% the previous week.
But refinancing is still surging compared to last year. Those applications jumped 52% compared to the same week in 2019, as borrowers took advantage of some of the cheapest mortgage rates ever seen.
The mortgage bankers say their survey shows rates are lower than ever on 30-year home loans, as the average dipped last week to a record 3.05%, down from 3.10% the previous week.
Applications for new mortgages (or “purchase loans”) decreased by 2% from the previous week, but were up 22% from a year ago, the MBA says.
With mortgage rates looking so favorable, lenders may have hit a wall in the amount of business they can handle — which may be one reason for the dip in demand for loans.
“Many lenders are still operating at full capacity and working through operational challenges, ultimately limiting the number of applications they are able to accept," says Joel Kan, the MBA's forecaster.
Meanwhile, the low mortgage rates arising from the coronavirus pandemic have been sending homebuying into a frenzy, breaking records along the way. But low supplies of homes for sale — and sky-high prices — could mean applications for purchase loans may eventually taper off.
“Since the mid-March lockdowns, about 400,000 fewer sellers came to market compared to last year, adding strain on the growing lineup of buyers,” says George Ratiu, senior economist at Realtor.com.
Incoming fee may be raising refi rates
Though overall mortgage rates found room to decrease even further last week, refi rates may be lagging.
"There are indications that refinance rates are not decreasing to the same extent as rates for home purchase loans, and that could explain last week's decline in refinances," Kan says.
To refinance at the lowest rate you can get, compare a minimum of five rate quotes — because rates can vary widely from one lender to the next. And be sure to request a rate lock, in case rates spike after you submit your application.
A new 0.5% fee on refinance loans goes into effect Dec. 1, but many lenders have already started rolling it into their rates.
Freddie Mac and Fannie Mae — government-sponsored mortgage giants that buy most U.S. home loans from lenders — say COVID-19 has made the fee necessary, as the companies look to offset losses related to the pandemic.
Good refi candidates — those with a solid credit score and at least 20% home equity — need to hurry to lock in the best rates while they can.
The mortgage data firm Black Knight recently calculated that 19.3 million mortgage holders were in a good position to refinance at a much lower rate and save $299 a month, on average.
If rates do rise, try to offset that cost by doing some additional comparison shopping to get the lowest rate possible on your homeowners insurance.