Homeowners could be missing out on significant mortgage savings after refinance applications continued to drop, despite mortgage rates falling to yet more all-time lows. According to the latest Mortgage Bankers Association (MBA) data (opens in new tab), overall mortgage applications for the week ending June 26 decreased by 1.8% from one week earlier, compounding the even sharper drop of 8.7% seen in the week before that (opens in new tab). Within these figures, applications to the best refinance mortgage companies (opens in new tab) fell a further 2% in the latest survey, having plunged 12% the previous week.
While the number of refinancing requests remains 74% higher than a year ago, the downward trend week-over-week seems surprising given mortgage rates continue to sink to ever deeper lows.
The latest figures (opens in new tab) from Bankrate show that the average cost of a 30-year fixed-rate mortgage from the largest U.S. lenders has just dropped for the fifth consecutive week to set another new record low of 3.35%. Meanwhile, a similar survey by Freddie Mac suggests (opens in new tab) that a typical 30-year mortgage loan now comes at a rate of just 3.07%, the lowest rate in the survey’s 50 year history.
Why are fewer homeowners refinancing?
For American homeowners, the money saving opportunities afforded by the low rate environment are potentially huge. According to LendingTree, savings of up to $52,000 could be made (opens in new tab) over the lifetime of a 30-year mortgage if homeowners opt for the best mortgage lenders (opens in new tab) rather than the worst. Yet, the numbers taking advantage of the most attractive mortgage rates that have ever been seen are now falling.
The wait-and-see approach
One reason could be that homeowners are simply biding their time, and waiting to see if rates will fall even further before they move to lock in. It is a theory not without base, with Sam Khater, Freddie Mac’s Chief Economist, believing there is a “distinct possibility” that the average 30-year fixed-rate mortgage could dip below 3% later in the year.
Greg McBride, chief analyst for Bankrate, also refuses to rule out further rate falls, saying: “As concerns about the spread of coronavirus increase, so do worries about the economic recovery. This will exert a downward pull on bond yields and mortgage rates.”
Should you wait for further rate falls?
So are homeowners right to adopt a wait-and-see approach to mortgage refinance? The answer is probably no. While it is possible that mortgage rates could fall further, there is also a chance that they could begin to rise, particularly if the U.S. economy starts to pick up - this might seem unlikely to some, but in a year of such massive unknowns, nothing should be ruled out.
It is also important to remember that mortgage rates are already at record lows, and so there really never has been a better time to refinance. Holding out for the chance of rates ticking a few marks lower makes little sense when the best mortgage rates that have ever been available are already on the table.
Are the right mortgages available?
The second reason for the recent slide in refi mortgage applications could be due to mortgage companies tightening their lending belts. According to the latest MBA analysis (opens in new tab) of the lending options being made available to borrowers, mortgage credit availability has dropped to its lowest level since June 2014, with providers adopting stricter lending criteria in response to rising unemployment rates and fears over the economy.
If a new mortgage seems unattainable, homeowners will understandably be reluctant to apply. However, again, the advice must be to try and take advantage of the refinance mortgages that are on offer, and secure the low rates that can be found.
Giving yourself the best refinance mortgage chance
When applying for a refinance mortgage (opens in new tab) - and particularly if you think it’s borderline that a mortgage company will take you on - the key is to make yourself look as financially attractive to that lender as possible.
Making sure you have as much of the evidence that mortgage companies require to assess your financial viability is a must. This will include proof of income, bank statements, a rundown of your debts, identity forms, and using tax software to get your tax returns in order.
Given lenders are being increasingly choosy over who they lend to, checking your credit score (opens in new tab) is essential too. How you are rated credit wise always proves instrumental in any lending decision, and if your credit score is below par, employing one of the best credit repair services (opens in new tab) is likely to prove beneficial if it secures you the best mortgage deal.
Importantly, however, you should always shop around among refinance mortgage companies (opens in new tab), even though mortgage rates are at record lows. Getting quotes from multiple lenders is always essential to find the best deal possible.