Refinancing demand drops 31% year on year, fueled by rising mortgage rates
Refinancing a mortgage is a great way to lower the cost of your home. If you qualify for a lower mortgage interest rate today than you had when you first signed your loan, you can swap your current mortgage for a new one and lower your monthly payments.
Last year, many homeowners rushed to refinance when mortgage rates hit record highs. Recently the rates have been higher, although they are still competitive on a historical basis. And yet the demand for refinancing is down substantially from what it was a year ago.
Homeowners don’t refinance like they used to
Last week, refinancing demand fell 5% from the previous week, reports the Mortgage Bankers Association. But more importantly, refinancing demand was 31% lower than it was at the same time a year ago. The reason most likely comes down to the fact that mortgage rates have gone up.
Of course, there may be other factors at play. At this point in the year, homeowners may be more focused on vacation planning and less mindful of their mortgages. Additionally, many people who are eligible for big savings through refinancing may have already taken this step.
But all in all, it is surprising to see the demand for refinancing drop so significantly given that rates are still quite low historically, even though they are not as low as they were a year ago. .
Should you refinance your home loan?
The profitability of refinancing your mortgage will depend on the savings you can make. Typically, refinancing makes sense when you can reduce the interest rate on your loan by about 1%. If you already have a competitive interest rate on your mortgage, refinancing might not be profitable. This is because you will have to pay a series of fees called closing costs to finalize your new loan, and you will have to make sure that they are worth paying.
In that sense, it usually doesn’t make sense to refinance if you don’t stay in your home longer. If you plan to move in the short term, you may not be able to recoup your closing costs.
Suppose you have to pay $ 5,000 to refinance your mortgage, which will save you $ 250 per monthly payment. That’s a nice sum of savings. But it will also take you 20 months to break even after spending $ 5,000 on closing costs to take advantage of these savings. If you plan to move in a year and a half, refinancing won’t make sense.
But if you are able to significantly lower the interest rate on your mortgage and you don’t plan on moving, refinancing could be a good bet. While mortgage rates may be higher than they were a year ago, there is still great potential for savings to be made depending on the current rate situation. And if you shop with different lenders, you’ll be in a great position to compare offers and come away with the best deal you qualify for.