With the delta variant of COVID-19 rampaging across the U.S., the nation’s economy is, for what feels like the millionth time, facing pandemic-triggered uncertainty.
And if the last year-plus of COVID instability has taught homeowners anything, it’s that the worse the outlook for the economy gets, the lower mortgage rates tend to fall. Rates are the lowest they've been since February, according to a new report from a lenders trade association.
Even so, refinancing went from red-hot to lukewarm last week, the report shows. If homeowners are holding out for even lower rates, that's a risky move.
Mortgage demand falls despite rock-bottom rates
Overall mortgage applications slipped 1.7% last week compared to a week earlier, the Mortgage Bankers Association reported on Wednesday.
Both refinance and home purchase applications fell by 2% week-over-week. That was even though the average rate on a 30-year fixed-rate mortgage — the most common choice among U.S. borrowers — sank to 2.97%, the MBA says.
"Interest rates drifted lower globally last week, as markets assessed the latest concerns regarding the delta variant. Thirty-year mortgage rates dropped below 3% in our survey for the first time since this February, presenting an opportunity for many homeowners who have not yet refinanced to lower their rate and their payments," says Mike Fratantoni, MBA senior vice president and chief economist.
The drop in purchase applications is less than shocking considering the current lack of affordable properties for U.S. homebuyers in the wake of the country’s COVID real estate boom.
But the decline in refi activity is more surprising, and not just because of the drop in mortgage rates.
According to MBA calculations, the typical homeowner is now saving an additional $1,400 by refinancing, thanks to the Biden administration's elimination of a 0.5% refinance fee as of Aug. 1. The fee had been imposed late last year to offset the risk of COVID-related foreclosures and defaults.
What’s next for mortgage rates?
Just a few months ago, the nation’s COVID-19 vaccination drive appeared to be leading the country toward a relatively rapid recovery. Amid that optimism, the average for a 30-year fixed-rate home loan rose from a record-low 2.65% in early January to 3.18% by April, according to mortgage giant Freddie Mac.
Rates hovered around the 3% mark until July 1 — almost exactly when new COVID cases began rising. Then rates fell, particularly after regulators in mid-July announced the end of the refinance fee. Many lenders had been passing along the fee to borrowers through higher mortgage rates.
The lesson here is that today’s mortgage rates, because they are so low and so closely tied to the pandemic, are highly sensitive. While economic uncertainty can help keep rates low, the slightest whiff of economic improvement can send them higher from one day to the next.
“Homeowners must be vigilant about not missing the current opportunity to refinance if their existing rate is above 3.5%," says Corey Burr, senior vice president of TTR Sotheby’s International Realty in Washington, D.C. “If the spread of the delta variant slows and the economy continues to rebound, rates could jump quickly."
Predicting where rates will be next month, or even next week, is a guessing game — one you can easily lose. Expecting them to fall further right now is — well, let’s just call it "bold."
How to get the best deal on a refinance
If you haven’t initiated the refinancing process even though you could slash your mortgage rate and monthly payment, you have plenty of company. Way too much, in fact.
Online real estate marketplace Zillow recently found only 22% of eligible homeowners refinanced their mortgages over the last year.
The savings can be considerable. A study released Monday by the mortgage data and technology firm Black Knight says 15.1 million current homeowners who haven't yet refinanced can save an average $298 a month by taking out fresh home loans.
To land the best refinance rate — one that will deliver the most savings — you’ll need to look your best as a borrower. That means:
Strengthen your credit score. The lowest mortgage rates tend to be offered to people with strong credit histories. Get a free peek at your credit score and see if you need to do anything to improve your score before you start presenting yourself to lenders.
Take control of your other debts. Even with a refi, lenders need to be confident in your ability to pay them every month. They don’t want to see that you're carrying multiple high-interest debts, like credit card balances. Consider rolling all of your debt into a single, lower-interest debt consolidation loan, so you’ll pay less interest, wipe out your debt sooner and strengthen your cash flow.
Shop around. When it’s finally time to approach lenders, don't apply only to the first one that claims to offer "the lowest rates around." They all say that. Compare refi offers from at least five lenders to find the best rate available in your area and to a borrower with your credit profile.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.