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
"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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