With mortgage rates falling from recent highs, experts are advising hopeful homeowners to keep an eye on this ever-changing situation. Nationally recognized economist Melissa Cohn, Ph.D., urged everyone to be mindful of where these rates are going. According to Freddie Mac’s most recent data, the average 30-year fixed-rate mortgage has dropped to 6.29 percent. It dropped to 6.58% for the week ending August 14, down from 6.63% the previous week. That’s a big decrease from the recent high of 6.89% in May. Additionally, homeowners finally have a tremendous opportunity to benefit from new refinancing chances.
Given that mortgage rates recently spiked close to 8% last October, this represents a substantial decrease. Jessica Lautz confirmed that rates have decreased by about one and a half points over that timespan. This sudden shift in financial circumstances has encouraged just about all homeowners who bought homes with high mortgage rates to refinance their loans.
Experts suggest that lower mortgage rates can lead to reduced borrowing costs for home loans, making refinancing an attractive option. OECD/Chen Zhao Chen Zhao took a close look at the emerging refinancing landscape. He implored the 80% of homeowners sitting with rates roughly 50 bps lower than current market rates to at least explore refinancing opportunities. He warned homeowners to reconsider. If they intend to move out of their homes in the next six months, it may not make sense to refinance.
“A much more common mistake is for people to not realize when rates have dropped that they had an opportunity to refinance and to take advantage of it.” – Chen Zhao
Today’s Refinance Index from last week’s application spike is a good measure of that current seriousness. The refinance percentage jumped to about 42% of all applications, the highest level since April. Joel Kan noted that week’s jump was the highest rate of refinance applications in four weeks. This trend may mark the beginning of a change in the homeowner attitude toward refinancing.
For those contemplating refinancing, experts advise caution. Homeowners should know that they will have to pay closing costs of $3,000 to $9,000 when they refinance a $150,000 mortgage. Bankrate calculates the average cost to refinance at between 2% and 6% of the total balance of the new loan. Homeowners should be sure that rates have fallen at least 1% overall. This is particularly key for them to realize actual savings on a refinance, as Melissa Cohn recently underscored.
According to Realtor.com, recent figures show that nearly 1 in 5 mortgages today (18.8% of current mortgages) have an interest rate of at least 6%. Millions of underwater homeowners would benefit from refinancing their mortgages. This is particularly the case if their existing rate is above 6% or even 7%. Jessica Lautz recommended that as mortgage rates decline, homeowners should seriously consider refinancing options if they fall within this range.