by Maurie Backman | Oct. 2, 2020
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Despite historically low rates, buyers and refinancers seem to be pulling back on new loans.
If it seems like mortgage interest rates keep getting lower, it's because the summer of 2020 was a summer of record for home loans. For weeks, the average 30-year mortgage has sat below 3%, while the average 15-year loan has been available at under 2.5%.
But despite these amazingly low rates, last week mortgage applications fell 4.8% from the previous week, according to the Mortgage Bankers Association. That includes both purchase mortgages for new homes and existing mortgage refinances.
The question is: Why has interest in mortgages waned? Are consumers getting used to today's low rates, or are there other factors at play?
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It's true that today's mortgage rates are very attractive, but housing inventory is also limited. As such, buyers may be interested in home loans, but aren't able to find properties that meet their needs or fit their budgets. The short supply of homes has caused home prices to climb, thereby negating a lot of the savings buyers could otherwise reap.
Of course, that doesn't explain why mortgage refinances fell 7% for the week -- even if they are still 52% higher than a year ago. One explanation may be that homeowners are waiting to see if rates drop even lower before pulling the trigger on their refinance applications.
Buying a home in today's market could prove a challenge. Even if you have a relatively healthy budget and down payment, you may find that the competition is too fierce. Many prospective buyers are being forced into bidding wars -- a stressful process that often results in overpaying for a home. If you'd rather not go through that, it could make sense to sit tight for a while and see if housing inventory opens up later this year or at some point in 2021.
On the other hand, if you're looking to refinance an existing mortgage, it could pay to get the ball rolling sooner rather than later. At the start of December, mortgage refinances will be subject to a 0.5% refinancing fee. That fee was initially supposed to take effect in September but was pushed back to December after the housing industry got up in arms over it.
December may seem like a long way off, but remember that it can take up to 60 days to close on a mortgage refinance. You'll need to complete the process in time to avoid that fee completely. And that means you'll need to start soliciting offers from mortgage lenders as soon as possible.
Mortgage demand may have dropped last week, but it's still higher than it was a year ago, and there are plenty of good reasons to apply for a new loan. While buying a home could prove challenging, that doesn't mean you shouldn't try to see what's on the market. And if your credit score is strong, it could certainly pay to apply to refinance your existing home loan in the hope of getting a better rate.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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