Is Now The Time To Refinance?

As October wrapped up its final week, mortgage rates held flat. Data from Freddie Mac’s weekly 

Primary Mortgage Market Survey found that the average 30-year fixed-rate mortgage rose 0,.1% over the previous week’s 2.80% to 2.81% this week. At this same time last year, 30-year fixed-rate mortgages were about 3.78%.

Freddie Mac’s chief economist Sam Khater told Money.com, “The record low mortgage rate environment is providing tangible support to the economy at a critical time, as housing continues to propel growth.”

“Strong purchase demand is helping to lift the construction, manufacturing and transportation industries that build new homes and it is also leading to more consumer spending for owners, who are selling or improving their homes. On the refinance front, many consumers are smartly taking advantage of the ability to lower their monthly payment, which means they can spend, save or pay down debt more so than they have in the past,” he added.

Additionally, 15-year fixed-rate mortgages also fell 0.01% to 2.32%, versus 3.19% last year. 5-year adjustable-rate mortgages increased modestly as well, gaining 0.01% over last week to 2.88%.

“Economic growth rebounded strongly in the third quarter, with multiple segments of the economy — after a sharp plunge in the second quarter — showing strong growth. The data show a picture of an economy reopening and restocking over the summer,” Mortgage Bankers Association’s chief economist Mike Fratontoni told Money.com. 

 “The third-quarter growth is consistent with the gains we have seen in the job market. MBA expects that the pace of economic growth will slow in the fourth quarter and into next year, but expansion should nonetheless continue, provided the current spike in virus cases does not lead to another complete lockdown,” he added.

According to the Mortgage Bankers Association, more people applied for mortgages during the week of October 23, while home purchase requests rose 0.2% over the week before. This time last year, purchase applications were 24% lower.

Moreover, the number of applicants seeking to refinance their home rose by 3% over last week, soaring 80% higher than last year. According to Money.com, refinance applications make up about 66% of all mortgage applications. 

What Does This Mean For You?

If you’re a homeowner looking to refinance or potentially buy a new house, several factors can impact your monthly mortgage bill, but your annual percentage rate is perhaps the most significant. Take a look at this example from Money.com for a $200,000 mortgage with a 30-year-fixed rate term (taxes, insurance, and other fees excluded:

 

  • With a 3% interest rate, you would pay $843 every month
  • With a 4% interest rate, you would pay $955 every month
  • With a 6% interest rate, you would pay $1,199 every month
  • With an 8% interest rate, you pay $1,468 every month

 

If you manage to keep the same conditions as your previous loan, refinancing could trim several hundred off your monthly home bill. On the other hand, if you opt for a shorter term, you may pay more every month but save thousands in interest for the mortgage duration. A mortgage calculator can help you determine the best option for your needs.

Which Mortgage Loan Is Best For You?

There are a variety of mortgages to choose from, such as:

 

  • Conventional borrowing
  • Subsidized borrowing
  • Veterans Affairs loans
  • Jumbo loans

 

Your lender can help you pick the best one based on your financial situation. If you’re looking to buy your first home, it’s okay if you’re unsure which type of mortgage you should choose. However, it would be best to do your homework to have a general understanding of each kind of loan.

Will The Current Mortgage Rates Save You Money If You Refinance?

If your current mortgage rate tops the current rate by 1% or more, you should think about refinancing your home. This process does come with several expenses, so it’s important that the savings you get offset these costs.

You also need to make sure your credit score is in good shape before applying. That way, you are guaranteed to get a competitive rate and save even more in the future. If you feel uncertain if refinancing is the best decision, several online lenders offer complimentary quotes to help you see if it’s worth taking on a new mortgage. Look for someone that performs soft credit inquiries so you don’t hurt your score. 

Alternatively, you may consider a 15-year mortgage. Although you will have to pay larger monthly payments, you can avoid thousands of dollars in interest payments. Not only that, but you’ll be able to pay off your home much faster versus other term lengths.

 

Source
  • Cook, Leslie. “Mortgage Rates Tick Back Up, Stay Just Above the Record Low.” Money, 30 Oct. 2020, money.com/current-mortgage-rates/.
Ian Schindler