Falling mortgage rates have some homeowners ready to refi — but only some
Falling mortgage rates have some homeowners ready to refi — but only some
The number of mortgage applications rose 11% last week from a week earlier to hit its highest level in more than two years, according to the Mortgage Bankers Association.
That was largely thanks to refinance applications; those were up 20%. Falling interest rates are convincing borrowers to take another look at their existing mortgages — at least some borrowers.
The number of people who could benefit from refinancing has been growing over the last few weeks.
“A large portion of it comes from folks that have taken out mortgages in the last couple years,” said Andy Walden, vice president of research and analysis with Intercontinental Exchange. “In fact, 40% of folks that have taken out their mortgages in 2023 or 2024 could save at least 0.75% through a refinance at today’s interest rate.”
That’s because many of those borrowers took out mortgages with interest rates in the high 6% to 7% range, he added. And the recent drop in mortgage rates is exactly what they’ve been waiting for.
“A lot of folks that purchased their home over the last couple years bought that home in anticipation of being able to refinance that mortgage if and when interest rates fell,” said Walden, “and you’re starting to see that opportunity present itself.”
That said, mortgage rates are still hovering at just over 6% right now, on average.
“You still have a large segment of homeowners out there with rates well below market rates,” noted Joel Kan, deputy chief economist with the Mortgage Bankers Association.
More than three-quarters of all borrowers have mortgages with rates below 5%, according to the real estate company Redfin.
For those borrowers, refis just don’t make sense right now, Kan said. “It’s hard to justify if you’re sitting on a rate that’s 3% or even 4%, to make the move in a market where rates are still around 6%.”
Homeowners also know that refis come with their own costs, per Chris Duncan, senior loan officer at La Salle State Bank in Illinois.
“Generally, there’s going to be an appraisal that’s going to be required, or there’s going to be recording charges, there’s going to be title insurance charges, the bank’s going to charge you some fees,” he said.
Many borrowers will probably want to hold off on refinancing because interest rates are likely to keep falling, he said. “A lot of people look at it and say, ‘Well, if the Fed is signaling that they’re going to reduce rates within the next couple months again and possibly at the start of next year, why not wait that out?'”
A lot of his clients refinanced their mortgages three or four years ago when interest rates were a lot lower than they are right now, Duncan added. That means his bank’s refi business has probably dried up.
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