Weekly Mortgage Applications Jump as Rates Plunge

Mortgage applications rose last week. Should you get in on the action?

Last week, the yield on the 10-year Treasury bond plunged, and that sent mortgage rates, which tend to follow that yield, plummeting. The result? The 30-year mortgage rate hit its lowest level since February of this year, and the 15-year mortgage rate hit a record low last seen in 1990.

Not shockingly, there was an uptick in mortgage activity in light of these falling rates. Total mortgage applications increased 5.7% for the week ending July 23, and the bulk of that activity came in the form of refinances.

What should you do now that mortgage rates are so low?

When mortgage rates fall, it can be tempting to either speed up your home-buying plans or rush to refinance your existing mortgage. But is that the right call?

If you're in the market for a new home, you should know that today's housing prices are very inflated, and that inventory is very low. As such, you might struggle to find a home you can afford. Or, you might find a home you can technically afford, but it may not be the type of home you really want. You may have to settle for a smaller property or one that's not in the best of shape.

Before you decide to apply for a mortgage, ask yourself:

• Am I stretching my budget too heavily by buying today?
• Is my credit score strong enough that I'll snag a competitive mortgage rate? (Generally, you'll need a score in the mid- to upper-700s to qualify for the best rates available.)
• Am I in a rush to move, or can I stay where I am a while longer and see if home prices come down?

Answering these questions will help guide your decision.

Meanwhile, if you're thinking about refinancing your mortgage, that may be a more viable option than buying a home in today's red-hot market. Refinancing could shrink your monthly mortgage payments and make your home more affordable to pay off. It can also save you money on interest over the life of your loan.

But to see if refinancing is right for you, ask yourself:

• Will I lower my mortgage's interest rate by at least 1%? (Generally, that's a good goal to aim for.)
• Is my credit score in good enough shape that I'll qualify for a great refinance rate?
• Do I plan to stay in my home long enough to reap savings after paying my closing costs? (If you're charged $5,000 to finalize your new loan and that lowers your monthly payments by $250, you'll only actually save money if you stay in your home for 21 months or longer.)

While mortgage rates, including refinance rates, have been competitive since the start of the year, right now, they're even more attractive. That gives you a prime opportunity to enjoy big savings on a new home or an existing one. Just make sure it's the right time to buy a home or refinance a mortgage before you move forward. Both are big decisions and ones you should consider carefully so you don't regret them later on.