Weekly Mortgage Demand Climbs 8.6% as Rates Fall

Mortgage activity is up after a decent drop in home loan rates. Should you think about applying for a mortgage?

Though mortgage rates started the year near historic lows, they began climbing steadily in February. And prospective borrowers clearly weren't thrilled about that. In fact, weekly mortgage applications have been on a steady decline since late February -- until recently.

Last week, mortgage application volume rose 8.6% compared to the previous week, reports the Mortgage Bankers Association. And that likely has to do with the fact that while rates didn't drop back down to near-historic lows, they have been declining over the past week or so.

Should you apply for a mortgage?

Though mortgage rates are looking more competitive now than they did, say, a month ago, housing inventory is still extremely tight, and home prices are still extremely inflated. As such, while you might snag a lower rate on a mortgage now than you could have a few weeks ago, what you save in terms of your rate, you might more than pay for in terms of current home prices. That's why it's a good idea to crunch some numbers to make sure you can afford a home in today's market.

Of course, the decision to apply for a mortgage should also boil down to how strong a candidate you think you are. To snag a competitive rate on your home loan, you'll need to have:

• A high credit score -- ideally, in the mid-700s or higher
• A low level of existing debt, measured as your debt-to-income ratio
• A steady job
• Cash reserves for a down payment

Checking off all of these boxes before applying for a mortgage can help ensure you're in a strong position to get the most affordable home possible. But even if you don't have a high credit score or a sizeable down payment, you still have options. Check out the following guides to help you find a home that fits your budget:

• How to get a mortgage with bad credit
• How to buy a house with zero down payment
• FHA loans

What about refinancing?

Just as mortgage rates have come down over the past few weeks, so too have refinance rates. If you're now in a position where you can shave about 1% or more off of your mortgage's current interest rate, then refinancing could make a lot of sense -- provided you also plan to stay in your home for at least a few years.

When you refinance a mortgage, you're charged closing costs to finalize that loan. You'll need to make sure you plan to hang on to your home long enough to recoup those fees and come out ahead via monthly savings. For example, if you're charged $4,500 to refinance, and that saves you $150 a month, it will take you 30 months to break even. So if you think you'll move in two years, refinancing won't pay.

Owning a home and being current on your existing mortgage may not be enough to make it worthwhile to refinance. To snag a great rate with a refinance lender, make sure you're paying your mortgage on time and have a good credit history. The higher your credit score, the lower the rate you're likely to get.

It's not surprising to see a connection between lower interest rates and increased mortgage demand. However, it's too soon to know if mortgage rates will continue to drop or whether they'll creep back up again. So if you're interested in getting a new mortgage or refinancing, you may want to apply sooner rather than later to avoid losing out on today's deals.