This week’s massive drop in mortgage charges might perk up ho-hum residence borrowing
This week’s sharp drop in mortgage rates could boost home borrowing
Mortgage rates have plummeted over the past week – just in time to overcome a slump in mortgage borrowing.
Interest rates are back very close to their all-time lows earlier this year as the angry Delta variant worries investors about the economic recovery and an unpopular refinancing loan fee has been removed by regulators.
Mortgage demand was declining before recent developments. But homeowners and homebuyers who held back are now rewarded with lower mortgage rates that can save them a lot of money.
Mortgage applications fell while interest rates were still rising
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For the week ending July 16, mortgage applications were down 4%, the Mortgage Bankers Association reported Wednesday.
Last week’s rising mortgage rates may have contributed to the decline, although another factor may have been that Americans have been enjoying their first summer without COVID-19 restrictions since 2019. Hotel occupancy has increased, national parks are setting records for visitors – and borrowing may have taken a back seat.
Home buyer requests to “buy” mortgages dropped 6% week-to-week, down 18% year over year. Refinancing requests decreased by 3% compared to the previous week and were also 18% lower than in the same period last year.
“Refinancing activity slowed during the week, but with interest rates remaining relatively low, the pace of applications was almost at its highest level since early May,” says MBA forecaster Joel Kan.
The significant year-on-year decline in refinancing may not come as a surprise. After all, mortgage rates have long been at rock bottom and many homeowners have benefited from them. But a recent Zillow survey found that 78% of eligible homeowners never received refinance in the past year.
Of those who did, 47% saved at least $ 300 a month.
Another reason for homeowners to refinance
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Refi activities are expected to show a jolt in the MBA’s next report – because the process has just gotten cheaper for millions of Americans.
The story goes on
On July 16, the Federal Housing Finance Agency – which oversees mortgage giants Fannie Mae and Freddie Mac – announced it would scrap a refinancing fee introduced last year to help the two state-sponsored companies cope with the pandemic. The FHFA said its “unfavorable market fee” would be removed from August 1st.
Fannie and Freddie buy most of the US home loans from lenders and bundle them into investments. As of last fall, refinancing loans likely to be purchased by one of the companies cost an additional 0.5%.
“Eliminating the disadvantageous market refinancing fee will help families take advantage of the low interest rate environment to save more money,” said Sandra L. Thompson, FHFA associate director, in a press release.
Housing watchers said lenders passed the fee on to consumers primarily through higher mortgage rates. The FHFA’s announcement caused interest rates to fall.
The average rate on a 30-year fixed-rate mortgage dropped from 2.88% to just 2.78% this week in Freddie Mac’s weekly survey – just an eighth point above January’s record low of 2.65%. On 15-year loans, which are a popular choice for refinancing, the average has fallen from 2.22% to 2.12% this week.
So you land the lowest possible mortgage rate
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Yes, mortgage rates are still historically low – and falling. However, whether you are applying for refinancing or buying a mortgage, it often takes a little work to get the most attractive interest rate from a lender.
Your history as a borrower will greatly affect the rate on offer, so take a free look at your credit history and see if it is impressive enough. Time well spent improving your score when it translates into a cheaper mortgage rate.
Then look for the lowest available mortgage rate in your area and someone with your credit profile. Studies by Freddie Mac and others have found that comparing at least five mortgage offers is key to saving thousands of dollars on your mortgage.
If you are not interested in a refi, there are other ways you can cut the cost of owning a home. When the time comes to buy or renew home insurance, check out multiple insurers to make sure you’re not paying more than you should.
And when you apply for a mortgage, you should be aware that lenders need to make sure you can make your monthly payments. You won’t have a lot of confidence when you carry multiple high-interest debts like credit card balances.
When you combine these into a single, lower-interest debt consolidation loan, you will lower the total cost of your debt, help you pay it off sooner – and convince lenders that you can make it as a homeowner.