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Sharp dive for mortgage rates sets off new refinancing boom

Sharp dive for mortgage rates sets off new refinancing boom
Sharp dive for mortgage rates sets off new refinancing boom

Many homeowners know a good deal when they see one.

Demand for refinance mortgages is soaring, a survey by a major lenders trade association finds. Homeowners are stampeding toward mortgage rates that have been driven back toward all-time lows by worries about the Delta variant and by the elimination of a widely despised fee on refi loans.

But U.S. homeowners are still leaving lots of money on the table. Online real estate marketplace Zillow recently found that only 22% of eligible homeowners refinanced their homes between April 2020 and April 2021, despite historically low mortgage rates.

If you've been holding out on refinancing, you're in luck — because deeply cheap mortgage rates are back.

Mortgage applications bounce back amid strong refi demand

Mortgage application
Fabio Balbi/Shutterstock

Mortgage applications rose 5.7% last week, the Mortgage Bankers Association reported on Wednesday. It was a healthy increase from the week before, when applications fell 4%.

With applications for the "purchase" loans sought by homeowners falling 2% last week, the overall rise in mortgage demand came primarily from refinance requests. Refinance activity rose 9% compared to a week earlier.

"Refinance applications jumped, as the 30-year fixed mortgage rate declined to its lowest level since February 2021," says Joel Kan, the MBA's forecaster. "With over 95% of refinance applications for fixed-rate mortgages, borrowers are looking to secure a lower rate for the life of their loan."

Homeowners stormed the refinance market as the average rate on a 30-year mortgage dropped last week to 2.78%, not far from the record low of 2.65%, according to the long-running survey from mortgage giant Freddie Mac. Rates have remained cheap this week, averaging 2.80%, Freddie Mac says.

The mortgage bankers say refi loans accounted for 67.2% of all mortgage activity last week, way up from 64.9% the previous week.

Why mortgage rates are dropping

Mortgage rates

Mortgage rates have been coming down as many lenders stop rolling a 0.5% refinance fee into their borrowing costs. With the fee now becoming history, refinances are an even better deal than they were before.

Regulators have announced that the pandemic-related "adverse market fee" on refi loans, which was introduced late last year, will officially end on Aug. 1.

Rates also have been following the sliding yield, or interest rate, on the Treasury's 10-year note. The recent uncertainty injected into the economy by a rising number of Delta variant COVID-19 cases has had a predictably negative effect on investors — and on the 10-year yield.

With the CDC reporting that fewer than half the U.S. population is fully vaccinated against COVID, the cloud hanging over the economy may get darker. New infections in the U.S. have been trending upward all month, reaching more than 108,000 on July 27.

The last time they were that high, on Feb. 9, the average rate on a 30-year mortgage was 2.73%, close to what it is today. As has been seen throughout the pandemic, bad COVID news tends to result in good news for refinancers.

"As rates drop below the key 3% mark, more opportunities open up for homeowners," says Corey Burr, senior vice president of TTR Sotheby’s International Realty in Washington, D.C.

How to get the best mortgage rate available

Happy couple with laptop spending time together at home
baranq / Shutterstock

If you own a home and haven't refinanced yet, you're probably paying too much. Zillow found that homeowners who did take out new loans over the past year saved $300 or more per month.

But even though mortgage rates have ticked down, lenders won't necessarily feel obligated to offer you the lowest interest rate available. Scoring a great rate on a refi usually requires a little effort on your part.

The mortgage market is extremely competitive, so don’t jump at the first attractive offer you see. Check mortgage rates from at least five lenders to compare your options and find the loan that best fits your budget.

But be warned: It will be hard to secure a low rate if you’re carrying multiple high-interest debts. Payments to multiple creditors can gum up your homebuying plans, so consider taking out a lower-interest debt consolidation loan. You’ll reduce your interest costs and wipe out your debt faster.

If refinancing your mortgage doesn't seem like the right move, you have other ways to cut the cost of homeownership. When the time comes to buy or renew homeowners insurance, getting quotes from multiple insurers might save you hundreds of dollars.

That same comparison-shopping approach also can help you pay less for car insurance.