All of the news about government rate cuts and lenders working to help borrowers with exotic or “toxic” loans, you would think the mortgage refinance business would be booming. And while mortgage applications did see a very nice spike in late January and early February, the rush to refinance is waning. According to the Mortgage Bankers Association, application volume fell 2.1 percent during the week ended Feb. 8th and almost all of the decline was due to a drop in refinance applications. There are a couple of reasons.
One – Interest rates have inched up. The average interest rate on a traditional 30-year fixed-rate mortgage increased to 5.67% the week before last according to Freddie Mac… and last week rates are trending up even a little higher. So, compared to late January when the average 30 year rate was closer to 5.500%, the current rate (closer to 5.875%) is not quite as enticing. With 30 year rates at 5.500% or 5.750% you could usually refinance and have the lender pick up your closing costs (which typically run about $1,500) by adding 0.125% – 0.250% to your rate. That would say you could refinance with no costs (other then escrows and prorated interest) and keep your 30 year fixed rate under 6.000%.
Two – It has become more difficult to qualify for a refinance loan, so lenders are turning away more potential applicants. During the boom years, lenders approved most everyone. Not so today. Lenders are beginning to recognize this and are becoming very selective about the clients whose applications they choose to submit or even to accept. The most important factors are credit history and home equity. On the credit front, ideally you would like your middle credit score to be 680 or above. On the home equity side, you would like to have 20% or more equity. If your existing loans represent more then 90% of the property value, you may find it difficult to refinance.
However, if your credit is solid and you have good equity in your home, now may be a perfect time to look at refinancing. There are some great values on 5 year adjustable rate loans (around 5.250% for a no cost refinance). And if we receive some significant negative economic news, we may see 30 year fixed mortgage rates move back down somewhat in the near future.
If you think there may be an opportunity to reduce your housing costs by refinancing, or if you have an adjustable rate loan that is schedule to increase this year, now is a good time to speak with a mortgage professional. The golden rule applies here… be sure you work with someone that you know, like and trust… if you do not personally know a reputable lender, ask your real estate professional to recommend someone they trust.
Guest blogger, Michael Polera, is a loan consultant with Baird & Warner Financial Services. Michael can be reached at 847.818.6029 or by email at email@example.com.