Refinance Demand Plunges 40% From Late 2020

It looks like fewer homeowners are rushing to refinance their mortgages. Here's why.

Ever since mid-2020, mortgage refinance rates have been sitting at competitive levels, historically speaking. But refinance rates also rose at the tail end of 2021. Not shockingly, that caused a downtick in refinance applications.

Last week, refinance demand fell 2% compared to the week before, as per the Mortgage Bankers Association. More significantly, it fell 40% from the same time a year prior.

Incidentally, purchase mortgage activity declined as well last week.

Rates are up but still competitive

Mortgage rates, including refinance rates, ended 2021 on a higher note. That may have caught some prospective borrowers off guard given the omicron situation.

Given the highly transmissible nature of the new variant and the economic damage it has the potential to cause, you'd think mortgage rates would've gone in the opposite direction. But so far, the economy doesn't seem to be taking too bad a hit despite a clear uptick in COVID-19 cases nationwide.

In fact, rising mortgage rates can actually be interpreted as a good thing from an omicron perspective. Higher rates could be a sign of economic optimism. That's a positive thing for home buyers, because purchasing a home on the cusp of an economic meltdown is hardly a savvy move.

And it's not just mortgage rates that seem impervious to the omicron situation. The stock market closed out 2021 on a high as well, giving investors something to be very happy about as they rang in the new year.

Should you consider refinancing?

If you've yet to refinance your mortgage since the start of the pandemic, you may want to consider applying for a new home loan if your credit score is solid and you expect to remain in your home for enough time to come out ahead financially after paying closing costs on your new loan. While refinance rates are starting off 2022 on a higher note, they're still very attractive on a historical basis. And given they have the potential to climb, you may be better off refinancing early on in the year rather than waiting.

Generally speaking, your goal in refinancing should be to lower the interest rate on your mortgage by about 1% or more. But even if you can't pull that off, there are other reasons to consider a refinance.

Right now, homeowners are sitting on a record level of equity. And so it's a great time to borrow affordably against that equity in the form of a cash-out refinance.

It could also pay to refinance your home loan if you've been struggling to keep up with your mortgage payments. Moving from a 15-year loan to a 30-year loan, for example, could spell the difference between being able to stay in your home versus having to sell and move.

If you're interested in refinancing your mortgage, it pays to shop around with different lenders and see what rates and closing costs they come back with. Doing some research could result in extra savings -- and that's not a bad thing to take advantage of.