This week’s sharp drop in mortgage rates could revive mediocre mortgage lending
Mortgage rates have fallen over the past week, just in time to reverse the decline in mortgage lending.
Rates are once again very close to their all-time lows from the start of this year, as the unleashed variant of the Delta worries investors about the economic recovery and because an unpopular commission on refinancing loans has been rejected by regulators.
The demand for mortgages was down before the latest developments. But holding back homeowners and homebuyers have now been rewarded with cheaper mortgage rates that can save them a lot of money.
Mortgage applications fell as rates continued to rise
In the week ending July 16, mortgage applications fell 4%, Mortgage Bankers Association reported wednesday.
The rise in mortgage rates last week may have contributed to the decline, although another factor may have been that Americans are enjoying their first summer without COVID-19 restrictions since 2019. Hotel occupancy rates are on the rise, national parks are setting attendance records – and borrowing may have taken a back seat.
Requests for the “buy” mortgages sought by homebuyers were down 6% week-over-week and 18% from a year ago. Refinancing requests fell 3% from the previous week and were also 18% lower than the same period last year.
“Refinancing activity fell during the week, but because rates have remained relatively low, the rate of applications was close to its highest level since the beginning of May, ”explains Joel Kan, forecaster of the MBA.
The significant drop in refinancing from year to year may not seem surprising. After all, mortgage rates have been at their lowest for a long time and many homeowners have taken advantage of them. But one recent Zillow poll found that 78% of eligible homeowners had never refinanced in the past year.
Of those who did, 47% saved at least $ 300 per month.
A new reason for homeowners to refinance
Refi activity is expected to show a jerk in the MBA’s next report – because the process just got cheaper for millions of Americans.
On July 16, the Federal Housing Finance Agency, which oversees mortgage giants Fannie Mae and Freddie Mac, announced that it would be elimination of refinancing fees it was introduced last year to help the two government-sponsored companies weather the pandemic. The FHFA said its “adverse market charges” would disappear on August 1.
Fannie and Freddie buy most of the US home loans from lenders and bundle them into investments. Since last fall, refinancing loans likely to be acquired by either company has cost an additional 0.5%.
“Eliminating unfavorable refinancing fees from the market will help families take advantage of the low interest rate environment to save more money,” FHFA Acting Director Sandra L. Thompson said in a statement. hurry.
Housing market watchers said lenders passed the fees on to consumers largely through higher mortgage rates. The FHFA’s announcement caused rates to drop.
The average rate on a 30-year fixed-rate mortgage fell this week in Freddie Mac’s Weekly Survey, from 2.88% to just 2.78%, just an eighth of a point above the January record low of 2.65%. On 15-year loans, which are a popular choice for refinancing, the average slipped from 2.22% to 2.12% this week.
How to get the lowest possible mortgage rate
Yes, mortgage rates are still historically low and declining. But getting the most attractive rate from a lender often takes a bit of work, whether you’re applying for refinancing or buying a mortgage.
Your history as a borrower will strongly influence the rate you are offered, so get a free overview of your credit score and see if that’s impressive enough. Spending time improving your score is time well spent, if it translates to a cheaper mortgage rate.
Then shop around to find the lowest mortgage rate available in your area and for someone with your credit profile. Studies by Freddie Mac and others have shown that compare at least five mortgage offers is the key to saving thousands of dollars on your mortgage.
If a refi doesn’t appeal to you, there are other ways to lower the cost of home ownership. When it’s time to buy or renew home insurance, consult quotes from several insurers to make sure you don’t pay more than you should.
And, when you apply for a mortgage, know that lenders will need to see that you are able to make your monthly payments. They won’t be very trusting if you have multiple high interest debts, such as credit card balances.
Roll them into one, low interest debt consolidation loan reduce the overall cost of your debt, help you pay it off sooner, and persuade lenders that you will be successful as a homeowner.