Mortgage refinances are surging, but the increased demand comes at a price.
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Mortgage refinances are surging thanks to low mortgage rates, which hit nearly three-year lows just last week. Currently sitting at 3.6% according to Freddie Mac, they’ve spawned a 180% uptick in refinance applications since just one year ago.
Online mortgage lender Better.com has seen its refinance volume double in just the last month alone, and though refinances accounted for nearly 62% of all U.S. loan applications last week, there’s still more room to grow.
Property data firm Black Knight estimated last week that around 9.7 million American homeowners could be eligible to refinance, cutting their rate by 0.75% or more.
As Sean Hundtofte, chief economist for Better.com, explains, “There is still a lot of refinancing to do. It would take the industry more than a year to work through the backlog of in-the-money refinance candidates at the average origination volumes before this last drop in rates.”
Still, even with an estimated savings of more than $260 per month, that doesn’t mean refinancing is a slam-dunk for everyone. In fact, according to some industry experts, the surge in demand might actually make it harder for some homeowners to qualify for one.
“Consumers shouldn’t expect lenders to bend over backward for their business,” said Holden Lewis, home expert at NerdWallet. “Many lenders are likely reaching capacity when it comes to handling refinance applications, so they don’t have much incentive to cut interest rates or fees, and they may be picky about which customers they do business with.”
Hundtofte agrees, saying fewer lenders are posting rates online as a result. He also says the “tsunami” of demand is slowing down industry vendors, and it could mean longer closing cycles, too. Though the latest data isn’t currently available, last month’s average rate of 3.77% saw the average time-to-close jump two days over June and a full week over April.
Hundtofte says the demand should level out though, thanks to more stable interest rates. Though rates sit at 33-month lows, they remained steady last week and have dropped just 15 basis points in the last month.
Moving forward, they’re largely expected to stay the path for the remainder of the year. The Mortgage Bankers Association adjusted its 2019 forecast earlier this week, now predicting a 3.7% rate at year’s end. Freddie Mac predicts 3.6%.
Whatever happens, Lewis said one thing’s still critical: Borrowers (both new and refinancing ones) need to shop around for their mortgage rate.
“Consumers can better their chances of getting the best deal possible by comparison-shopping to find the best combination of rate and fees,” Lewis said. “Getting quotes from just five lenders could save you hundreds of dollars in the first year alone.”