Mortgage Refinance Demand Plunged 15% Last Week
There's a reason so many borrowers have refinanced their mortgages in the course of the pandemic. Since mid-2020, mortgage rates -- including refinance rates -- have sat at very competitive levels. Borrowers have been eager to eke out savings by swapping their existing home loans for new ones.
But last week, mortgage refinance demand dropped substantially. The Mortgage Bankers Association reports that refinances fell 15% from the previous week and 41% from the same week one year prior.
Why the decrease?
A big reason refinance demand fell last week was that interest rates crept upward. Refinance rates tend to be a little bit higher than the rates borrowers are given for a purchase mortgage (one that finances a home being bought). That uptick may have spooked borrowers.
But that doesn't mean we'll see sluggish refinance activity for the rest of the year. If rates creep back downward, more borrowers could opt to refinance their home loans before 2021 comes to an end.
Should you refinance your mortgage?
Refinancing your mortgage could result in lower housing payments -- and a lot more financial flexibility. But is that the right move for you? Before you refinance, ask yourself these key questions:
1. What shape is my credit score in?
The higher your credit score, the more likely you'll be to snag a competitive interest rate on a refinance. If your score is already in the upper-700s or higher, there's probably no need to do anything to boost it. That sort of score should render you eligible for the best interest rate any given refinance lender has to offer. But if your score is lower, it could pay to work on boosting it and then apply to refinance.
2. What does my current interest rate look like?
If you happened to snag a low interest rate on your existing mortgage, then refinancing may not be worth your while. Generally, your goal in refinancing should be to shave about 1% off of your existing loan's interest rate. If you're paying very little interest already, that may not be feasible.
Now you may be thinking "What's the big deal if I only save a little money by refinancing?" The answer is that you'll pay closing costs to replace your existing mortgage with a new one. And so you want your savings to be robust enough to make those fees worth paying.
3. Do I plan to stay in my home for a few more years?
Closing costs can be worth paying if, in the long run, they result in savings on your mortgage payments. But you'll need to make sure you plan to stay in your home long enough to actually reap savings.
If you're charged $4,000 in closing costs to save $200 a month on your mortgage payments, you won't break even for 20 months. And so if you think you might move in a year, you're probably better off waiting to refinance.
Though refinance volume may have dipped a lot last week, things could change as 2021 winds to a close. If you're on the fence about refinancing, run through the questions above. Also, don't feel pressured to apply for a refinance this year. Chances are, rates will remain nice and competitive once 2022 kicks off.
A historic opportunity to potentially save thousands on your mortgage
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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