With 30-year mortgage rates falling, is it time to refinance?

In October, 30-year mortgage rates fell to levels last seen in June 2013. It all started in the week of October 16, when the bellwether rate hit 3.97 percent, according to Freddie Mac, down from the previous week’s 4.12 percent. The decline didn’t stop there. In the following week, the rate fell to a 3.92 percent average for the week ending October 23. Overall, for five weeks, the rate tumbled, leaving many to wonder what this can mean for homeowners. As these borrowing costs continue falling, some believe if they continue doing so, a small rise in applications for refinancing could follow. Mark Zandi, Moody’s Analytics chief economist, recently said of that if the 30-year rate remains low, “it could spark a refi boomlet.” He added that with mortgage rates under four percent, he’d expect this to spur refinancing activity by twice as much than if rates were around 4.5 percent. So as a homeowner, is it time to explore refinancing? Mortgage Bankers and Clients Contact One Another Maybe you’ve recently heard from your mortgage banker about this. Some have been contacting their previous clients to talk about a potential refinance. In the past, maybe you didn’t qualify as you owed more than their home’s value. Is now your time? Christian Penner, a mortgage banker in West Palm Beach, Fla., said via the Wall Street Journal, “This may be the last time, for the 10th time, that you’ll see these rates again.” This comes on previous predictions that mortgage rates are poised to rise. But clients have been sharing the enthusiasm as well, contacting their mortgage bankers too as they see a possible bargain. For the week ending Oct. 17, refi applications increased 23 percent from the previous week, hitting November 2013 levels, according to the Mortgage Bankers Association (MBA). The power of 4 percent Aside from the falling number, some psychology could also be at play. This could have come from the magic number of four percent. Or, in this case, below four percent. For some, this number has a certain effect and it is spurring homeowners to take action. MBA chief economist Mike Fratantoni said, “Four percent is a very important psychological level. At certain points, people who aren’t watching the markets every day get prompted to say, ’Hey, what would it look like if I refinanced?’” But this effect may not last long. Last year, homeowners numbering in the millions refinanced with average 30-year mortgage rate below four percent until the middle of the year. However, as the current housing market still faces tight mortgage credit, increasing home prices and stagnant incomes, this may not spur refinancing as some expect. When is it worth refinancing? So when is a good time? With the falling rates, it has definitely caused a movement to refinance but time will tell if this rise continues. According to real estate data provider CoreLogic, about half of all homes that have mortgages, their rates are about 4.3 percent or less; this may not be worth it for homeowners to refinance at these lower rates. They also need to factor in fees and costs for refinancing. If you’re pondering refinancing, look at your numbers and think about whether this would be a good thing. Economists have estimated that homeowners with rates greater than 4.25 percent would benefit from it while others see those borrowers in the 3.5 percent to 4 percent range not enduring the spike of refinancing for long. Talk to your mortgage broker and ask plenty of questions, Think of the potential to refinance as a long-term decision rather than a short-term one. And don’t get caught jumping on the bandwagon.