Mortgage rates fell on average the last week of November, causing a spike in mortgage refinance applications, according to recently released data from the Mortgage Bankers Association (MBA).
Mortgage rates are significantly lower than they were a year ago, giving homeowners a powerful incentive to talk to their lenders about rate and term refinancing. In fact, total mortgage applications rose 4.7 percent last week from the previous week.
According to CNBC’s Diana Olick, the jump in the MBA’s seasonally adjusted report was due in large part to a 9 percent weekly increase in refinance applications.
Mortgage rates increased following the presidential election and remained higher for the last month of 2016. Now, however, rates have lowered and homeowners who have built up substantial equity are taking advantage.
Olick reports that refinances are now down just 10 percent from a year ago due to lower volume for much of last year.
According to the MBA’s report, the average contract interest rate for 30 year fixed rate mortgages with conforming loan balances of $424,100 or lower decreased to 4.19 percent from 4.20 percent. The rate stood at 4.27 percent a year ago.*
“The refinance share is at its highest level since September,” said Mike Fratantoni, chief economist at the MBA, in a statement to CNBC. “Purchase volume continues to be supported by a strengthening job market.”
Industry professionals and economic analysts expect rates to rise again in 2018, so homeowners on the fence about refinancing may want to move fast. Likewise, potential home buyers may want to consider getting preapproved for a mortgage sooner rather than later, in order to lock in a low rate.
Mortgage refinancing is a way to recalculate a home loan using a new interest rate and/or term. For example, a homeowner with a fixed rate of 4.5% may discover they qualify for a rate of 3.5% as market rates drop. By switching to a lower mortgage rate, the homeowner may be able to enjoy a lower mortgage payment as well as save on overall interest throughout the life of the loan.
On the other hand, some homeowners wish to shorten (or lengthen) their loan terms when the refinance. For example, someone with a 15 year mortgage may wish to switch to a 30 year mortgage in order to lower their monthly payments. Likewise, a 30 year mortgage borrower may wish to refinance to a 15 year loan in order to build up equity faster and save a significant amount of interest overall.
In most cases, homeowners need at least 20% equity to qualify for a refinancing program. There are also closing costs associated with most refinancing programs; however, some programs, such as the FHA or FHA Streamline Refinance loan, may offer lower closing costs and a lower minimum loan-to-value ratio. Due to these costs and requirements, refinancing may not make sense for every borrower.
If you are interested in refinancing your mortgage for the sake of saving money on interest or monthly payments, use a refinancing calculator or speak with a lender or financial advisor to determine your breakeven point. This is the period of time it will take before the savings of a refinance loan outweigh the cost.
*Please note, the MBA publishes average contract interest rates and the rates stated in their reports may differ from interest rates quoted by individual mortgage lenders. Various factors also affect interest rates, including loan-to-value (LTV) ratio, points and more. Contact one of our mortgage professionals for a mortgage rate quote personalized to your scenario.
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