You’ve seen the headlines about the Federal Reserve interest rates dropping to zero among the Coronavirus outbreak, and while you’re stuck at home, you might be wondering if it’s time to refinance your home’s mortgage rate.
If you’re practicing proper social distancing measures, heading into a bank for a sit down with a mortgage broker isn’t advised. But homeowners looking to cash in on these low-interest rates can still refinance digitally by using REX Home Loans.
“The fourth quarter was a banner period for residential mortgages across the United States, as declining interest rates and a strong economy helped spur more than 2 million borrowers to sign on for new or refinanced loans,” Todd Teta, chief product officer at ATTOM Data Solutions, said in the company’s report.
The status of refinancing rates
Before the Coronavirus shuttered people into their homes, mortgage refinancing rates were already climbing.
Mortgage refinance rates for residential homes more than doubled in the fourth quarter of 2019, for a total of 1.27 million refinanced mortgages, according to a report from Attom Data Solutions. That’s the highest peak in seven years and up 104 percent from the fourth quarter of 2018.
“Mortgage applications increased 10% last week from one year ago and show no signs of slowing down,” Sam Khater, chief economist at Freddie Mac, said in a report.
Even with low-interest rates, before the Federal Reserve dropped them to near zero, these refinanced mortgages represent $391.3 billion in total dollar volume. That’s a 19 percent increase from Q3 of 2019 and an increase of 138 percent from the last quarter of 2018, which is the highest level since the first quarter of 2013.
“Refinancing largely drove the trend, with more than twice as many homeowners trading in higher-interest mortgages for cheaper ones than in the same period of 2018. These trends could all change when the economic fallout from the Coronavirus outbreak hits,” Teta said. “But the last few months of 2019 saw a burst of lending activity not seen in the U.S. housing market for several years.”
The report found that residential refinance mortgage originations increased year-over-year in all but two areas — Beaumont, Tex. and McAllen, Tex., both experienced a drop at 6.8 percent and 9.1 percent, respectively.
Other booming metropolitan cities saw large jumps. New York grew a 91.5 percent, Los Angeles increased a whopping 158.8 percent, Chicago rose 144.5 percent. Two other Texas cities saw significant increases, as well — Dallas saw a 90 percent increase and Houston was up 32.9 percent.
What Does The Fed Cutting Interest Rates Mean For Me?
On March 15, The Federal Reserve cut its interest rates a full percentage point, making its benchmark 0%, in hopes of helping the economy during this troubling time due to the Coronavirus. However, that does not mean your mortgage rate will be zero.
“The Federal Reserve’s swift and significant efforts to stabilize the market were much needed and helped mortgage rates drop for the first time in three weeks,” Khater said in a Freddie Mac report. “Similar to other segments of the economy, real estate demand is softening. However, the combination of the Fed’s actions and pending economic stimulus will provide substantial support to the mortgage markets.”
Mortgage rates have been falling since January to its lowest point in about 50 years, but lenders are not necessarily offering zero rates. What The Fed sets its rate at doesn’t affect mortgage rates directly, but there is a downstream effect.
“Mortgages respond to market forces and not to the Fed,” Holden Lewis, mortgage and real estate expert at NerdWallet, told MarketWatch. “The Fed is actually following and not leading when it comes to mortgage rates.”
Overall, these low rates boosted refinance activity. Locking in at a lower rate can help homeowners in the long run.
For some additional perspective, the 30-year fixed-rate mortgage dropped to 3.50 percent, Freddie Mac Home reported March 26. That’s a decrease of 15 basis points from the prior week when rates surged to the highest level since January.
“It was so disruptive to the point that last week, lenders were really having trouble determining how to price loans when they weren’t getting a clear signal from the capital markets as to what those rates should be,” Mike Fratantoni, chief economist at the Mortgage Bankers Association told MarketWatch. “The Fed stepping in this week had a “huge psychological benefit” for lenders, which allowed them to feel comfortable bringing rates lower.”
However, because of this surge in refinance applications, some of the rates were temporarily and artificially inflated because lenders couldn’t handle the application volume. So, if you were looking to refinance, it’s good you waited until now as the artificially inflated rates have dropped again. But don’t wait too much longer, as mortgage rates are affected by supply and demand, so if applications surge again, mortgage rates will increase. There’s also no guarantee mortgage rates will drop any lower than they currently are.
Overall, this backlog seems to have calmed down. But since some of the lenders are forced to stay at home due to the Coronavirus, some banks may still be delayed.
Before refinancing, ask yourself some questions. How long are you going to stay in your home? If you plan to move to a larger place after all this social distancing is over, now may not be the best time. If you’re in your home for the long haul, now could be a great time to refinance.
Can you pay off your mortgage? If you have enough to pay off the remainder of your mortgage, you may want to rid yourself of the monthly payment. If that’s not an option, refinancing can help you have extra money month-to-month because of the lower interest rates.
So you’re looking to refinance?
If you’re spending your quarantine crunching the numbers, you might be looking to refinance. But many banks have limited hours or have closed their lobbies, making meeting with a mortgage broker challenging.
Through this period of self-isolation and social distancing, more and more of our world is online. You can refinance digitally and reap the benefits of these historically low-interest rates. Refinancing now can save the average homeowner thousands of dollars, so it’s a great time to jump at the opportunity.
REX Home Loans has always been an online solution to help provide customers highly competitive rates. If online isn’t for you, give our mortgage brokers a call. We remove the high cost of commissions, which allows REX provides competitive rates on a range of mortgage options that will best fit you. Our highly experienced mortgage professionals can help you decide if it’s best to refinance and make the process as painless as possible.