NEW YORK – Hard to imagine, but all the noise in 2020 actually might have blocked out the sound of the refinancing boom for many people.
But homeowners who dragged their feet and have yet to refinance a mortgage might even snag a lower rate now than if they acted in January or February. The 30-year fixed-rate mortgage fell to another record low for the week that ended Nov. 5, hitting 2.78%, according to Freddie Mac. That’s down significantly from 3.69% for the same time a year ago.
The uncertainty relating to the election – as well as the coronavirus pandemic – have helped to drive down rates to new lows.
Mortgage rates began to significantly fall beginning in April after the Federal Reserve started buying mortgage-backed bonds as a way to offer relief during the COVID-19 recession.
Consumers who refinance can save money on their monthly mortgage payments, freeing up cash to cover other bills.
You must verify your income to qualify, so refinancing is not an option if you’ve lost a job. Retirees, though, may be able to refinance a mortgage if they can point to a steady pension or annuities that can be used to repay the debt.
In general, homeowners can be a good candidate for refinancing if they have built up equity in their home, are able to refinance their existing mortgage rate to one that is at least 0.75 percentage points lower, and plan to stay in their home for at least three years to five years, according to Adam DeSanctis, a spokesperson for the Mortgage Bankers Association.
Refinancing activity is expected to soar by nearly 71% this year, compared with a year ago, according to the Mortgage Bankers Association.
Overall in 2020, the mortgage industry expects to hit $1.78 trillion in refinancing originations – the highest level since 2003. But forecasts call for originations to slow next year, dropping by an estimated 46% to $946 billion.
As interest rates fell during the pandemic, the opportunity to lock in a low rate grew in 2020.
United Wholesale Mortgage CEO Mat Ishbia said homeowners will want to shop around for the best rates, especially since there is a significant disparity in rates being offered by lenders. Some lenders, he said, are pricing themselves so they’re no longer competitive because they’re already overwhelmed with a glut of refinancing applications given the ultra-low mortgage rates.
“It’s never been this low and that’s part of the capacity issue,” Ishbia said.
A large segment of homeowners could still benefit from refinancing, Ishbia said. Homeowners should be able to get a better than average refinancing rate in the 2% range, if they shop around.
United Wholesale Mortgage reported that its closed on $54.2 billion in loans in the third quarter, up 81% from its $29.9 billion loan volume closed in the third quarter of 2019. That includes refinanced loans and mortgages for new purchases.
Ishbia said between 65% to 75% of the loan volume involved refinancing for the third quarter.
New refinance fee debuts Dec. 1
The Federal Housing Finance Agency is imposing a 0.5% refinancing fee that kicks in Dec. 1 on most mortgages. If your refinanced mortgage is under $125,000, you will not be hit by this fee. On a $200,000 mortgage, the fee would add another $1,000. But not all lenders are passing all of the extra cost directly to consumers.
Ishbia said that’s yet another reason for homeowners to shop around and do some research by working with a mortgage broker. He recommends going to findamortgagebroker.com – a site that’s powered by United Wholesale Mortgage, a division of United Shore Financial Services.
“Every lender is so different,” he said.
Experts say homeowners shouldn’t think they need to rush in November to refinance before the Dec. 1 kickoff for the extra free. First, you might not close that loan in time to avoid the fee. Second, the fee might already be baked into your loan offer.
Phil Shoemaker, president of originations at Ann Arbor, Michigan-based Home Point Financial, a mortgage lender and servicer, said many lenders across the country have already included the new 0.5% surcharge in their pricing before that fee officially goes into place.
“It’s still a favorable time to refinance compared to where rates have been in previous years, but there isn’t any kind of a mad dash to beat the buzzer, so to speak, before the fee goes into effect,” Shoemaker said in a statement.
Right now, mortgage rates remain well below where they were at the beginning of 2020 and during the early days of the COVID-19 pandemic, says Matthew Speakman, an economist at Zillow.
“Uncertainty pertaining to the pandemic has continued to place downward pressure on rates into the fall,” Speakman said.
But if we start to see signs of improvement in the jobs picture or other positive gains for the economy, experts say, rates could move upward at some point. We’re not there quite yet.
The “uncertain outcome of the election appears to have led to a spike in demand for government bonds, placing downward pressure on mortgage rates,” Speakman said.
“Bond market investors appear to be interpreting the uncertain election results as a sign that more economic stimulus is unlikely in the near term.”
“The development helped push mortgage rates notably downward. Given the still-uncertain election results, more sharp movements in mortgage rates in either direction may be on tap in the coming days and weeks,” Speakman wrote in a report Wednesday.
Consumers need to recognize that their own situation will influence the mortgage rate that they’re able to snag.
Before you attempt to refinance, you should check your credit score. Also go to annualcreditreport.com to review your credit report for any errors that could be driving down your score.
“It’s a big range in interest rates depending on where your credit score is,” said Tendayi Kapfidze, chief economist for Lending Tree. “Get actual quotes for your actual situation.”
A homeowner with a credit score in the range of 620 to 639 might be looking at an annual percentage rate of 3.8% when refinancing. But someone who has a score of 760 or higher might be able to qualify for an APR around 3%, he said. The APR would reflect fees and offer you a look at the effective interest rate over the life of the loan.
If you have more equity built up in your home, you’d typically qualify for a better rate, as well.
Kapfidze said refinancing activity is very high compared with earlier in the year. He noted that the average Freddie Mac rate for a 30-year mortgage was 2.81% last week – down from 4.94% in 2018 and down from 3.69% a year ago.
A borrower who took out a $300,000 loan in September 2015 at 3.91%, according to Lending Tree, could save about $300 per month on their payment and more than $19,000 in lifetime interest by refinancing at 2.87%.
In a study this fall, Lending Tree noted that about 86% of mortgage refinance applications are approved across the country. Homeowners with higher credit scores and increased home values are more likely to be approved.
According to Lending Tree, South Dakota, Utah, North Dakota and Nebraska have the highest rates of approval, at 90% or more. Florida and New York are the states with the lowest approval rates.
Greg McBride, chief financial analyst for Bankrate.com, said mortgage rates remain near record lows and refinancing is a way to generate a steady stream of monthly savings on a mortgage, and potentially tens of thousands of dollars in savings over the life of the loan, depending on how long you stay in that home.
As of Nov. 4, according to Bankrate’s latest survey of the nation’s largest refinance lenders, the benchmark 30-year fixed refinance rate was an average 3.03%. The average rate for refinancing was 2.68% for a 15-year fixed rate; and 3.25% for the 5/1 adjustable-rate refinance.
In general, he noted, refinancing rates have tended to be running higher than mortgage rates for new purchases.
“Moral of the story: Shop around, because there are plenty of sub-3% rates still out there,” McBride said.
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