Refinancing activity is on the up again after American homeowners reacted quickly to a fresh drop-off in mortgage interest rates.
According to the latest Mortgage Bankers Association (MBA) data (opens in new tab), refinance applications increased 10% for the week ending April 16, marking the first rise in activity since the end of February. In turn, mortgage loan applications overall were up 8.6% compared with the previous week, as home loan rates, which have been steadily rising in the early months of the year, fell sharply lower.
"Mortgage rates dropped to their lowest levels in around two months, prompting a small resurgence in refinance activity after six weeks of declines,” said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. “Borrowers acted on the decrease in rates for most loan types, with both conventional and government refinance applications showing gains."
Refinance interest rate savings
The MBA said the average interest rate for conforming 30-year fixed-rate mortgages dropped to 3.20% from 3.27%, while 30-year FHA loans — backed by the Federal Housing Administration — fell to 3.15%, from 3.24%. The average rate on 15-year mortgages - which prove popular among existing borrowers looking to the best refinance mortgage companies (opens in new tab) to switch to a better deal - decreased to 2.65% from 2.67%.
The downturn in rates is also backed up by separate data (opens in new tab) from Freddie Mac, which found that 30-year rates averaged just 3.04% for the week ending April 15, down from 3.13% a week earlier, and that 15-year rates averaged 2.35%, falling from 2.42%.
While rates haven’t returned to the record lows (opens in new tab) that were regularly being posted last year, Black Knight says (opens in new tab) some 13 million American households still have a strong financial incentive to refinance, and could lower their monthly payments by on average $283 if they were to switch to a new low rate mortgage deal. Over 2 million could save more than $400 a month.
Should you refinance now?
If you haven’t got round to refinancing within the past year, the time to search out the best mortgage lenders (opens in new tab) is almost certainly now. Mortgage interest rates may not be as low as they were, but by historical standards they’re still extremely attractive, and there’s always the chance that the next rate move will be up.
Rather ominously, Sam Khater, Freddie Mac’s Chief Economist, warns: “Despite the pause in mortgage rates recently, we expect them to increase modestly for the remainder of this year.”
Of course, you shouldn’t just take our word for it - you’ll need to do your own calculations to make sure refinancing makes financial sense, and take into account all the costs involved with refinancing your house (opens in new tab) too.
This means locating the paperwork for your existing mortgage and checking if there are penalties to be paid if you switch. Remember that fees will be charged for setting up your new mortgage too.
Before you start to apply for refinancing (opens in new tab), make sure you have as much of the paperwork you’ll need to hand. Most lenders will want to see proof of income, identity forms, your tax (opens in new tab) returns, and your bank statements - they’ll also want to know all about your debts from credit cards and personal loans (opens in new tab).
Finally, to get the very lowest mortgage interest rates on your refinance deal, you should take the time to polish and repair your credit score (opens in new tab) too.