Rates took a dip. Is it time to refinance?

Published April 14, 2021
by Better

Mortgage News 4/12/2021: Rates Took A Dip. Is It Time To Refinance?

Here’s a look at the latest developments in the mortgage market for the week beginning 4/12/21.

  • Rates took their first dip in seven weeks. Is now the time to refinance?
  • More existing homes may hit the market as owners prepare to sell
  • Increased jumbo loan credit may signal flexibility for applicants
  • Is buying a home worth it? Here’s how to assess

Rates took their first dip in seven weeks. Is now the time to refinance?

Rates dropped for the first time in two months, with the average 30-year fixed rate falling to 3.13% last week, from 3.18% the week before. The market was likely reacting to a recent Coronavirus spike, which brought a sense of caution to the economy’s recovery.

Otherwise, mortgage rates have been rising since January, and the number of homeowners choosing to refinance has gradually declined. Refinance applicants went from making up nearly three quarters of mortgage applications at the end of 2020 to 60% of them today. As a homeowner, should you rush to refinance during a dip like this?

While a lower-than-usual rate is always a benefit, the reality is, it’s a gamble to try and time the market to catch one. In fact, knowing when to refinance has less to do with how the market is moving and everything to do with your unique financial picture.

There’s no cut and dry formula for knowing when to refinance, but the team at Better Mortgage follows a general rule of thumb that if an owner can lower their rate by .50%, it’s likely a financially sound move. So for example, if a $300,000 loan was financed at a 30-year fixed rate of 3.65%, its monthly payments (excluding insurance, taxes, and other costs) would be somewhere around $1,400. If the same loan can be refinanced at a rate of 3.15%, that owner could save at least $200 per month, or $2,400 by the end of the year.*

Given that average rates for 30-year fixed mortgages were consistently higher than 3.63% before January 2020, a homeowner who first financed over a year ago is likely to save. With an even longer span of time between financing, or an even greater difference in rates, the potential for savings only grows—even when rates are rising.

But it’s not just rates that make refinancing worthwhile. Homeowners can benefit from the process if they’re looking to consolidate other loans or debt, cash out some of their home equity, or reset the terms of their mortgage, especially with an improved credit score or loan-to-value ratio. Still on the fence? Read up on how those scenarios can bring rewards.

Regardless of the market, the goal of a refinance is to improve upon your current mortgage—and that depends on your personal finances and goals. See how today’s rates measure up with your current loan to see if there’s an opportunity for a better deal.

More existing homes may hit the market as owners prepare to sell

After sitting at a record low for months, existing home inventory will likely get a boost thanks to many homeowners’ newfound comfort with selling. One in seven homeowners said they’re considering selling their home within the next three years, and, of that, 41% are planning on selling in the next twelve months. Seller attitudes are aligned with the general public, as 61% of Americans recently said it was a good time to sell a home.

The shift in attitude may have been driven by the fact that more Americans are now vaccinated, making homeowners more comfortable with in-person tours. Many cited their desire to relocate, with 50% wanting an upgraded home, and 39% hoping to capitalize on buyer competition for the best price.

More existing home listings may offer buyers some relief from the tension of low supply on the market, after March ended with 117,000 fewer listings than the year before. While it may not be enough to lower competition and prices, new inventory may help curb price growth.

Increased jumbo loan credit may signal flexibility for applicants

The credit supply for jumbo loans has increased by 1.5% in March, according to the Mortgage Bankers Association. This comes within an uptick in overall mortgage credit, which means loans may be more widely available to applicants, and it spells good news for those looking to borrow more than their conforming loan limit allows.

Given their higher totals, many lenders offset the risk of jumbo loans with stringent criteria, like higher down payments and credit scores. When loan credit increases, it means lending standards are likely loosening. In this case, homebuying season has ramped up demand for jumbo loans, and the added supply may mean more flexibility for applicants with lower credit scores or higher loan-to-value ratios.

Is buying a home worth it? Here’s how to assess

Homeownership is both an upfront investment and an ongoing commitment, so if you’re on the fence, it’s worth taking a look at all the pros and cons before diving in.

One of the biggest rewards of owning a home is equity. As you pay into the principal amount of your mortgage, or as your property value increases, you gain a larger portion of home equity. But it also takes an average of four years for home equity to cover a buyer’s upfront costs alone. So before committing, consider how long you plan to stay in your home, as well as your other financial needs and goals during that time. This breakdown can help guide your decision as you weigh the risks and benefits of homeownership.

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