Many people are very happy with their loans. They have a low interest rate, and the monthly payments are perfectly within their budgets. But some could do better. Some could possibly save hundreds of dollars a month and thousands of dollars in a single year, simply by refinancing.
In fact, the market is seeing a strong increase in refinancing. With so many people reworking their mortgage loans, does that mean the time is right for you too?
Possibly. But first we should look at the rise and try to determine why this increase may be happening in the first place.
Refinancing is On the Rise. Is it Time to Update Your Mortgage?
Refinancing: A Look at the Data
Every homeowner needs to first consider their own personal situation before deciding whether or not to refinance. However, it never hurts to look at the national trends, as this can guide your decision. If you find, for example, that many people are currently using FHA loans for their purchase, perhaps there is something going on; perhaps it’s time you look into FHA loans yourself.
The same principle applies to refinancing. If many people are refinancing, it’s at least worth looking into. So, what do the numbers tell us? According to statistics from Ellie Mae, a major software company that processes mortgage applications, mortgage refinances have been trending upward since the latter portion of 2019, accounting for roughly half of all applications in September, October, and November. (As of writing this article, the most recent information is from November of 2019.)
In November, refinance applications accounted for 49% of all applications, with purchase loans making up the remaining 51%. The same percentages were seen in September. But in October, refinances actually made up a higher percentage than purchases, with 51% of all applications going towards a refinance.
This upward trend appeared to begin in July. During that month, refinancing was 38%, up from 31% the month before. A month later, in August, refinancing jumped to 43%.
How does this compare to previous times? Earlier in the year, refinance applications were in the middle 30’s, usually around 31% to 35%.
But comparing different months can be tricky. December and May are two very different months, so comparing stats from these periods is, to use a cliche, an “apples-to-oranges” analysis. However, we can look at the same months from different years. In this case, we see that the rise is indeed unique.
Refinance applications from all loans in November of 2018 were 30%, while purchase applications were 70%. In October of 2018, refinancing was 32%, and in September it was 29%. Clearly there is something unique happening in refinancing.
Interestingly, this trend is seen across many different mortgage types, but it is most significant in conventional loans, which makeup roughly 65% to 75% of all applications in a given year. In conventional loans, we see refinancing makeup as much as 58% of applications (Oct, 2019), while it’s usually only a quarter to a third of other types. (FHA and VA, for example.) Because conventional loans make up such a large portion of the overall applications, they tend to slant the data.
Even when refinancing on conventional loans were over 50%, refinancing on FHA was 27% or 28%. VA loan refinancing maxed out at 37%. This can tell us a lot, but it appears that people with FHA and VA loans are happy with their mortgage and have little incentive to refinance.
Why is Refinancing on the Rise?
On a personal level, there are many reasons why someone would choose to do a refinance on their home mortgage. But to have such a significant increase in refinancing over a relatively short period; there must be something happening at the national level.
Most likely, this increase is driven by lowering or steady interest rates combined with a strong economy. Usually, when interest rates are lowered, it is because the economy is sluggish. During a slow economy, interest rates are decreased by the Federal Reserve in an effort to stimulate the market. When the market is strong, interest rates are often reduced to prevent a bursting bubble. But right now, we have a unique situation where the economy is strong and interest rates are low.
This means that many people have the opportunity to refinance. Interest rates are steady, and people with a high interest rate may have recovered from a low credit score, which could have caused a high interest rate on their previous loan.
There could be other reasons, but it seems reasonable to assume that the low interest rates, combined with more people working, is having a significant impact on the rate of refinancing.
Regardless of Market, Personal Factors Matter Most
No matter what the market is doing, no matter where nationwide interest rates sit, it’s more important that your personal situation is ideal for refinancing. Generally speaking, refinancing a loan is best when you have a high interest rate on your mortgage and you have a long time remaining on the loan. If you are within a few years of completing the loan, for example, refinancing may not be useful.
However, if you have decades left on the loan, you have improved your credit since purchasing the house, and you started with a relatively high credit score, it may be useful to refinance. With current rates remaining low, it could be the right time, especially if your personal situation is ideal for refinancing.
Again, personal factors are more important, but you should at least consider refinancing.
Helping You Get the Right Loan for Your Specific Needs!
If you want more information on refinancing, or if you want a mortgage expert to take a personal look at your current loan situation, contact our team today. We will be proud to help you get the most affordable loan possible, so contact us now and get the service you deserve!
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