Seasonal factors and a minor rise in mortgage rates teamed up last week to drive both homeowners and prospective buyers from the mortgage market, according to new data collected before regulators tossed out a fee on refinance loans — and sent rates tumbling.
Ahead of that news, demand for both refinance and purchase mortgages fell, a weekly survey from a top lenders trade group shows.
Borrowers who were holding out have now been rewarded with cheaper mortgage rates that can save them a great deal of money.
Mortgage applications fell while rates were still rising
Last week, the average for a 30-year fixed-rate mortgage — the most commonly held mortgage product in the U.S. — rose minimally from 3.09% to 3.11%, according to the Mortgage Bankers Association.
Over the same seven days, applications for mortgages fell by 4%, the MBA reported on Wednesday.
While higher rates may have contributed to the decline, another factor may be that Americans are enjoying their first summer without COVID-19 restrictions since 2019. Hotel occupancy rates are returning to pre-pandemic levels, national parks have been setting new attendance records — and borrowing may be taking a backseat.
Applications for “purchase” mortgages sought by homebuyers declined 6% week-over-week and were down by 18% from a year ago. Refinance requests decreased by 3% compared to the week before and were also 18% lower than the same period last year.
“Refinance activity fell over the week, but because rates have stayed relatively low, the pace of applications was close to its highest level since early May,” says MBA forecaster Joel Kan.
The significant year-over-year drop in refinances may seem unsurprising. After all, mortgage rates have been rock-bottom for a long time, and many homeowners have taken advantage. But a recent Zillow survey found 78% of eligible homeowners never refinanced over the past year.
Among those who did, 47% saved at least $300 a month.
A new reason for homeowners to refinance
Refi activity is expected to show a jolt in the MBA’s next report — because the process just got cheaper for millions of Americans.
On Friday, the Federal Housing Finance Agency — the agency that oversees mortgage giants Fannie Mae and Freddie Mac — announced it would be scrapping a refinance fee it introduced last year to help the two government-sponsored enterprises weather the pandemic.
The FHFA said its “adverse market fee” would be gone as of Aug. 1.
Fannie and Freddie buy most U.S. home loans from lenders and bundle them into investments. Since last fall, refinance loans likely to be acquired by either of the companies cost an additional 0.5%.
“Eliminating the adverse market refinance fee will help families take advantage of the low-rate environment to save more money,” FHFA acting director Sandra L. Thompson said in a news release.
Housing market observers said lenders had been passing the fee along to consumers mostly in the form of higher mortgage rates. The FHFA’s announcement sent rates plummeting.
The average rate on a 30-year fixed-rate mortgage sank from 3.04% on Thursday — the day before the news — to 2.87% on Tuesday, according to Mortgage News Daily. On 15-year loans, which are a popular choice for refinances, the average slid from 2.50% to 2.31% over the same span of days.
How to land the lowest mortgage rate possible
Yes, mortgage rates are still historically low — and falling. But getting the most attractive rate from a lender often requires a little bit of work, whether you’re applying for a refinance or purchase mortgage.
Your history as a borrower will heavily influence the rate you’re offered, so get a free look at your credit score and see if it’s impressive enough. Spending time to improve your score is time well spent, if it results in a cheaper mortgage rate.
Then, shop around to find the lowest mortgage rate available in your area and for a person with your credit profile. Studies from Freddie Mac and others have found that comparing at least five mortgage offers is the key to saving thousands of dollars on your mortgage.
If a refi isn’t something you’re interested in, there are other ways of reducing the cost of homeownership. When it’s time to buy or renew homeowners insurance, review quotes from multiple insurers to make sure you’re not paying more than you should.
And, when you apply for a mortgage, understand that lenders will need to see you’re able to make your monthly payments. They won’t have much confidence if you’re carrying multiple high-interest debts, like credit card balances.
Rolling those into a single, lower-interest debt consolidation loan will cut the overall cost of your debt, help you pay it off sooner — and persuade lenders you’ll make it as a homeowner.
