14 April 2024

As Mortgage Rates Move Higher, Homeowners are Making a Miscalculation, Data Says

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Mortgage activity is stuck in neutral as borrowing costs continue to climb and fewer homeowners pounce on what experts still consider historically low rates to refinance their home loans.

With rates rising to their highest level in four months, according to a new survey from the country’s latest mortgage trade association, mortgage demand has gone flat.

And rates are expected to stay on an upward trend as more Americans get back to work and new cases of COVID-19 slowly decline. If you have a mortgage, passing on a refi at today’s low rates could cost you thousands of dollars over the life of your loan.

Refinance demand drops 

Mortgage applications were up a scant 0.2% for the week ending Oct. 8, compared with the previous week, the Mortgage Bankers Association (MBA) reported on Wednesday. A 2% increase in applications to purchase homes helped offset a 1% decline in refinance activity.

The purchase activity was a bit of welcome news, but many home shoppers are still unable to buy as prices rise, inventory continues to be tight, and financing costs spike.

Joel Kan, the MBA's associate vice president of forecasting, notes that the average rate on a 30-year fixed mortgage has risen to 3.18% in the trade group's weekly survey, up from 3.03% a month ago. During that time, refi applications have fallen 11%.

"Mortgage rates reached their highest level since June 2021," Kan says. "We continue to expect weakening refinance activity as rates move higher and borrowers see less of a rate incentive."

A competing survey found 30-year mortgage rates dipped last week, to an average 2.99%, making the possibility of refinancing more enticing. But that survey, from mortgage giant Freddie Mac, says rates this week are back up to 3.05%, on average.

Signs point to higher mortgage rates 

Nadia Evangelou, senior economist with the National Association of Realtors, says mortgage rates tend to go up when employment grows and the unemployment rate falls.

Despite weaker-than-expected hiring in September, the unemployment rate fell sharply last month and the labor market outlook is still positive.

"This translates to higher mortgage rates in the following months," writes Evangelou in an economic outlook piece.

Still, today’s rates are lower than they were pre-pandemic, when the 30-year fixed averaged around 3.8%.

The Realtors expect the 30-year fixed mortgage rate to hit an average 3.5% by mid-2022.

“Even though mortgage rates may rise, they will continue to be historically low," Evangelou writes. "As more Americans rejoin the workforce, demand for housing is expected to remain robust as they set their sights into homeownership, especially with low mortgage rates."

How to save on a refi while you still can 

Many homeowners still have opportunities to save with a refinance. A recent study from Zillow found almost half the homeowners who refinanced between April 2020 and April 2021 have reduced their monthly house payments by at least $300.

But if you want to score the lowest rate possible, you’ll need a good credit score. If haven't seen yours in a while, it's easy today to take a peek at your credit score for free.

If your score needs some work, it may be because you're carrying a bunch of high-interest debt, like credit card balances. You might want to consider rolling them a single, lower-interest debt consolidation loan.

If you think you'd qualify for a refinance, compare rates from at least five lenders to find the best deal for your area and for a person with your credit profile.

If a refi isn’t in your future, there are other ways to cut the cost of homeownership. When it’s time to renew your homeowners insurance policy, be sure to get quotes from multiple insurers. The same strategy can be used to lower your car insurance bills, too.

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