by Christy Bieber | June 17, 2021
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Borrowers are taking advantage of falling rates.
The number of people applying for mortgage loans increased recently, according to the Mortgage Bankers Association. For the week ending June 11, 2021, there was a 4.2% increase in mortgage applications compared to the week before -- even after adjusting for the impact of the Memorial Day holiday during the prior week.
The reason why applications went up last week, even though they had been declining for the prior three weeks? Rates fell, and both current homeowners and would-be home buyers decided to take advantage of the reduced borrowing costs in order to secure more affordable home loans.
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According to the Mortgage Bankers Association, mortgage applications rose sharply last week because rates fell for 30-year fixed-rate loans. This was true for both purchase and refinance loans. Some rates hit recent lows, although they are still up compared with the record-setting, rock-bottom rates during the heart of the pandemic.
Although there were more applications for both home purchase mortgages and for refinance loans that pay off existing home loans, refinance activity was especially strong. In fact, there was a 5.5% increase in refinance loan applications for the week ending on June 11 compared with the 4.2% overall increase in applications for both purchases and refinances.
The reason why mortgage refinance applications increased more dramatically in response to the rate drop is that people who are refinancing don't need to find a new home to buy in order to take advantage of falling mortgage rates. They already have their house and their existing home loan, so refinancing can save them money if they can qualify for a new loan at a competitive rate.
By contrast, to take advantage of the decline in mortgage rates for new home purchases, borrowers would need to be ready to apply with a mortgage lender to buy a new property. In many parts of the country, there are few properties available, and prices have risen sky high. That's a big reason why the total number of applications for purchases is down considerably compared with a year prior. It's also an explanation for why applications for new loans didn't increase nearly as much as applications for refinancing did last week -- despite the overall drop in average rates.
Refinancing makes up around 61.7% of mortgage activity since so many homeowners can save on their current home loan by refinancing -- especially when rates experience a dip. For homeowners who haven't recently refinanced, it's well worth looking at average interest rates and determining if the recent drop in the cost of borrowing would provide a good opportunity to save.
Those looking to purchase new properties, on the other hand, may find it frustrating that they can't necessarily take immediate advantage of the recent rate drop to secure a home loan. But many lenders do allow you to lock in a loan rate for a period of time even before you've found a specific property to buy. Consider whether that's worth doing if you're happy with how rates have been trending.
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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