Refinance Demand Falls 43% as Rising Rates Spook Borrowers
There was a notable drop in refinance applications last week as borrowers pulled back.
Though mortgage refinance rates are still quite competitive on a historical basis, they've also risen sharply since mid-February. The result? Fewer borrowers are swapping their current home loans for new ones.
Applications to refinance a mortgage fell 5% last week, according to the Mortgage Bankers Association. But what's even more notable is that they were 43% lower compared to the same week one year ago.
If you've been thinking of refinancing your mortgage, you may be wondering whether now's the right time to do it. And the answer is -- it depends.
Should you refinance your mortgage today?
As of this writing, the average refinance rate for a 30-year mortgage is 3.287%. For a 15-year loan, it's 2.613%.
These rates may seem high compared to where they were about a month ago. At that point, the average 30-year refinance was closer to 2.9% and the average 15-year refinance was sitting at under 2.4%.
But just because today's rates are higher than what rates looked like a month ago doesn't mean they aren't competitive. And locking in a refinance today could still result in big time savings.
To see if refinancing is right for you, ask yourself these questions:
- What does my credit score look like? You're more likely to snag a competitive refinance rate if your score is in the mid-700s or higher. If it's lower, the offers you get may come in higher than the average rates just noted.
- How much can I lower my interest rate by? As a general rule, refinancing makes sense when you can lower the interest rate on your mortgage by about 1%. If you already have a very low interest rate on your home loan, refinancing may not pay off.
- Do I have any plans to move? When you refinance, you pay closing costs to finalize your new loan that typically equal 2% to 5% of your mortgage amount. You'll need time to break even from those costs by enjoying monthly savings on your mortgage payments. So if you're planning to move soon, refinancing may not be worth it. For example, if you're charged $5,000 in closing costs to refinance and your monthly payment goes down by $250 as a result, it will take 20 months to break even. If you might move in the next year and a half, you'd risk losing money by refinancing.
- Do I need to change the terms of my loan? If you're currently repaying a 15-year mortgage and those monthly payments are getting to be too much for you, swapping that loan for a 30-year mortgage could ease that burden. While you may see your mortgage's interest rate go up in that scenario, your monthly payment will go down since you're giving yourself more time to repay your loan. That could be a move worth making now, while refinance rates are still reasonably low.
We don't know if refinance rates will continue to climb in the coming weeks or drop back down. They may even go back and forth, jumping one week and coming back down the next. All told, today's refinance rates are still pretty attractive. So if you've been thinking of refinancing, you may want to get moving -- before rates really start to increase.
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