Homeowners are eager to take advantage of rock-bottom interest rates.
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Low mortgage interest rates continue to fuel a surge in refinance activity amid the coronavirus pandemic, resulting in record-breaking loan volume for lenders over the past two months. Rates continued their downward spiral in April to 3.48%, down from 3.65% in March.
Mortgage software giant Ellie Mae has seen a 24% month-over-month increase in total closed loans. The refinance share of mortgage activity continued to rise, accounting for 65% of closed loans in April, up from 55% in March and 51% in February.
Annual percentage rates for purchase and refinance loans have fallen from 2019 in all of the nation’s largest metros, according to an analysis by LendingTree. Some markets have experienced larger declines than others.
Rates offered to refinance borrowers decreased the most in Hartford, Connecticut; San Francisco and San Jose, California. Across all three metros, the average annual percentage rate was 3.53%, dropping by about 21% from April 2019.
Buffalo, New York; Providence, Rhode Island; and New Orleans saw the smallest percent declines in interest rates offered to refinancers from 2019 to the present. However, the average rates offered to refinance borrowers in the three metros still dropped by more than 17% to 3.9% in April 2020.
Ellie Mae found that the time to close all loans increased to 42 days in April, up from 40 days in March. FICO scores on all loans increased to 749 in April, up from 742 in March. Conventional refinance FICO scores increased to 763, up from 758 in March and representing the highest such score since January 2013.
“Interest rates continued to decline in April, driving up the share of refinances by 10%,” said Jonathan Corr, president and CEO of Ellie Mae. “We’re also seeing FICO scores increase as lenders manage the current economic uncertainty by tightening credit.”
Mortgage technology is shaping the way lenders and borrowers interact and conduct business.
“As interest rates drop, savvy borrowers are quick to take advantage,” explained Corr. “With average rates on 30-year conventional loans dipping to 3.48%, lenders are seeing a wave of demand at a time when necessary social-distancing measures can make managing their pipelines more difficult. Those lenders who invested in digital mortgage technology to manage their pipelines virtually are now able to capitalize on this surge in demand.”
Andria Lightfoot, chief operating officer of George Mason Mortgage, said the company is keeping pace with the refinance surge by leveraging technology to move faster and more efficiently.
She explained, “With the recent industrywide refinance surge, George Mason Mortgage is handling a 145% increase in volume year over year in April with minimal increase to operations staff and simultaneously transitioning to an agile, remote workforce.”
Refinancing a mortgage can result in significant savings, but it’s not always the right move for every homeowner. It’s tempting to just focus on the interest rate, but the strategy can also backfire, leaving applicants in a worse financial position and with less money in the bank. So how do you know if you should refinance?
“This is a question that a lot of us are asking right now,” said Kevin Parker, vice president of field mortgage at Navy Federal Credit Union. “It comes down to the individual experience. Rates are exceptional, so if you can save significant money on your monthly payment, or if you can transition from a 30-year loan to a 15-year one, then it might be the right time.”
Before you refinance with your current lender, it pays to shop around for your mortgage refinance to ensure you’re getting the best deal.
Parker explained, “It’s important to work with a lender you can trust — one that will help you through the process and answer your questions. It’s also important to look for a lender with a good reputation and one that can survive these challenging times. Also, it can be nice to refinance with a lender who will service the mortgage for the life of the loan. That way you don’t have to worry about changes to who you pay each month. Of course, it’s important to understand the cost associated with refinancing: interest rate, annual percentage rate, fees and closing costs.”
He added, “We recommend starting by doing your homework. Understand your credit score and then research lenders to see what interest rates are being offered for the loan that fits your needs. Many lenders have calculators on their websites that can help you better understand what benefit there might be when refinancing a home loan.”
Parker sees the current low mortgage-rate climate as the ideal time to refinance. He says, “We’ve seen a 267% increase in refinance applications here at Navy Federal. That has resulted in longer than normal times to close a refinance loan. Despite that, for many, it’s a great time to see how a refinancing can help them better achieve their financial goals.”
In a perspective piece on Fannie Mae’s website, Henry Cason, senior vice president and head of digital products at Fannie Mae, wrote: “With the recent shift many people have experienced to remote work, digital closing options are top of mind for lenders and other stakeholders. The speed and ease of eClosings allows borrowers to review and even sign documents in advance, which dramatically changes the closing experience.”
He added: “Title agents benefit from the ability to leverage a remote online notarization, which eliminates meeting in person and enables the borrower to close anywhere. In today’s mortgage market, eClosings allow lenders to offer an expedited experience that some borrowers expect and prefer. Lenders can also be more efficient because they are not bogged down with managing and validating paperwork, have greater certainty about the quality of the loan, and receive funds faster.”