Mortgages: The right time to refinance?
A boon for buyers and borrowers
An unexpected decline in mortgage rates this spring has spurred a “frenzy” of loan applications, saidBen Eisen in The Wall Street Journal. They surged 27 percent last week, marking the biggest weekly increase in more than four years, as the rates on 30-year fixed mortgages fell below 4 percent for the first time since 2017. Many are taking the opportunity to refinance their loans. One Connecticut couple bought a home last spring with a rate of 4.75 percent; recently, they managed to negotiate a new rate of 3.99 percent from their lender, paying only $2,800 in fees, “which they will recoup in monthly payment savings in less than a year and a half.”
The low rates have pushed more buyers into the market and left house flippers scrambling, said Diana Olick in CNBC.com. Some have had to get creative in order to maintain an edge. Daniel DiGiacomo, a real-estate investor in Washington, D.C., says he now has “too many regular buyers competing with him” for conventional listings, thanks to the low mortgage rates. He’s “hired about 150 Uber and Lyft drivers to scour the streets” for available homes that might be worthwhile to purchase and flip. He pays the drivers $500 for a lead that turns into a sale.
The window for low rates might not be open long, said Austin Weinstein in Bloomberg.com. “The Treasury Department is near completion of a plan to return” mortgage-finance companies Fannie Mae and Freddie Mac to private ownership for the first time since the government spent $191.5 billion to bail them out and seize command of them in 2008. “They have since returned to profitability” as a backstop for the banks who provide more than half the nation’s mortgages. But before any privatization, Fannie and Freddie will have to boost their capital levels. This might require the companies to “increase the fees they charge lenders to insure against borrower defaults,” an expense that the banks would likely pass along to buyers.
For homeowners, the recent rate drop is “an unexpected gift,” said Natalie Campisi in BankRate.com. A new report by mortgage research firm Black Knight found that 5.9 million people could save money by refinancing existing loans, with average savings of $271 per month. Whether refinancing makes sense for you depends on the closing costs and how likely you are to move, said Emmie Martin in CNBC.com. The closing costs “typically run around 2 percent of your total mortgage balance.” If you took out a $400,000 mortgage 10 years ago and now can refinance it at 3.75 percent, you’ll recoup your closing costs in about four years—then if you stay in your house, you’ll save about $130 a month for the next 16 years.