March 5, 2020
Mortgage refinancing has taken off as coronavirus fears keep mortgage rates tumbling across the U.S.
A lenders trade group reports that demand for refinance loans has shot up by more than 15% as increasing numbers of homeowners wake up to the fact that the lowest mortgage rates in years can shrink their monthly housing costs.
But by one estimate, millions of Americans are still clinging to their high-interest home loans — and are missing out on potentially thousands of dollars in savings every year.
Don’t let a great mortgage rate pass you by. If you see one you like, lock it — and put yourself on a path toward slashing your mortgage payments.
Mortgage refinances soar
Overall mortgage applications jumped 15.1% during the week ending Feb. 28, the Mortgage Bankers Association reported Wednesday, and that was after edging up just 1.5% the previous week.
Last week’s big rise was led by a surge in refinance applications from homeowners. Demand was up 26% from a week earlier — and increased a staggering 224% compared to the last week of February 2019. In other words, lenders were dealing with more than three times as many refi requests as they were a year ago.
All of that was happening as the coronavirus outbreak moved into new countries and the death tolls and numbers of cases rose rapidly, throughout the world and here in the U.S.
“The 30-year fixed rate mortgage dropped to its lowest level in more than seven years last week, amidst increasing concerns regarding the economic impact from the spread of the coronavirus, as well as the tremendous financial market volatility. Refinance demand jumped as a result,” says Mike Fratantoni, chief economist for the Mortgage Bankers Association.
Lenders are hiring “like mad” to keep up with the onslaught, Bloomberg reports. They’re adding thousands of new employees and are warning them that they can expect to work long hours.
Refinances accounted for 66.2% of all mortgage applications last week, way up from 60.8% a week earlier.
Homeowners have been finding that if they refinance, they can slash their monthly payments and total interest costs even if their current mortgages were taken out as recently as 2018.
You haven’t refinanced yet? There’s still time
Fratantoni expects the refi boom will continue because mortgage rates are likely to fall even more. On Thursday, mortgage giant Freddie Mac reported that 30-year mortgage rates had fallen to an all-time low in its weekly survey, at an average 3.29%.
Investors scared that the coronavirus outbreak will trigger a recession have sent the interest rate on the 10-year Treasury note to new all-time lows, below 1%. Mortgage rates are falling to record lows, too, because they tend to move nearly in sync with the 10-year Treasury yield.
“Given the further drop in Treasury rates this week, we expect refinance activity will increase even more until fears subside and rates stabilize,” Fratantoni says.
But lots of homeowners who could save big by refinancing still haven’t done so, according to the data firm Black Knight.
If you’re in that group, it’s time to stop procrastinating.
Black Knight estimates that 11.1 million U.S. homeowners could reduce their mortgage payments by an average $268 a month by doing a refi. The total potential savings amount to a staggering $2.99 billion.
The Federal Reserve has made a bold move that could help keep mortgage rates plummeting. The Fed took emergency action on Tuesday to slash a key interest rate by a sharp one-half of one percentage point to protect the economy from coronavirus fallout.
Homebuyer borrowing lags; the industry adapts to coronavirus
While refinance activity was on fire last week, applications for mortgage “purchase loans” — to buy homes — slipped 3%.
“We are now at the start of the spring homebuying season, says Fratantoni. “While purchase applications were down a bit for the week, they are still up about 10% from a year ago. The next few weeks are key in whether these low mortgage rates bring in more buyers, or if economic uncertainty causes some home shoppers to temporarily delay their search.”
The coronavirus has not yet had any measured impact on homebuying, but it is having an effect on how the real estate industry does business.
Real estate brokerage Redfin has decided to start allowing buyers to tour homes via video chat and do their closings electronically, as opposed to in person.
“If you’d rather not meet others except where necessary, we can let you see a home, bid on it, and close on it, all virtually,” says Redfin CEO Glenn Kelman, in a blog.
Redfin also is encouraging agents not to shake hands with customers — while telling clients not to take it personally.
Meanwhile, Kelman says Redfin agents continue to report strong demand for homes, particularly in Chicago, the Washington, D.C., area and Boston. Historically low mortgage rates are helping.