Homeowners missing out on low mortgage rates - here's why you should refinance your mortgage now

Homeowners missing out on low mortgage rates - here's why you should refinance your mortgage now
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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, 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. Within these figures, applications to the best refinance mortgage companies 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 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 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. 

Homeowners missing out on low mortgage rates - here's why you should refinance your mortgage now

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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 over the lifetime of a 30-year mortgage if homeowners opt for the best mortgage lenders 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.”

Homeowners missing out on low mortgage rates - here's why you should refinance your mortgage now

(Image credit: Pixabay)

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 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. 

Homeowners missing out on low mortgage rates - here's why you should refinance your mortgage now

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Giving yourself the best refinance mortgage chance

When applying for a refinance mortgage - 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 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 is likely to prove beneficial if it secures you the best mortgage deal. 

Importantly, however, you should always shop around among refinance mortgage companies, even though mortgage rates are at record lows. Getting quotes from multiple lenders is always essential to find the best deal possible.

Tim Leonard

With over 20 years’ experience in the financial services industry, Tim has spent most of his career working for a financial data firm, where he was Online Editor of the consumer-facing Moneyfacts site, and regularly penned articles for the financial advice publication Investment Life and Pensions Moneyfacts. As a result, he has an excellent knowledge of almost areas of personal finance and, in particular, the retirement, investment, protection, mortgage and savings sectors.