Two weeks ago, the 30-year fixed-rate mortgage rate hit a 2014 low at 3.97%, according to Freddie Mac’s weekly mortgage rates survey. But late last week, the average rate had dropped to 3.92%. We’re seeing mortgage rates at historic lows, even after experts projected rates to rise significantly in 2014, and homeowners have taken notice.
“Homeowners are definitely hearing about rates and considering a refinance,” said Chris Birk, director of education for Veterans United Homes Loans and a Credit.com contributor. He explained in an email: “Last week was the best of the year in terms of refinance applications, according to the Mortgage Bankers Association. The MBA’s refi index was up 23% week over week.”
It’s Not All About Mortgage Rates
If you’re one of the homeowners tempted by these low interest rates, you might see significant savings if you refinance your home while rates are low. The low mortgage rates may have you itching to refinance, but that should’t be the sole factor dictating your decision, said Scott Sheldon, a senior loan officer at Sonoma County Mortgages and Credit.com contributor.
“Frequently, a borrower will make a decision based upon an initial rate quote only, then actually apply for the mortgage, send in their supporting financial documentation, [the] lender will get the credit report, and then the lender would have to switch loan programs, which could very much change the original price quote,” Sheldon wrote in an email.
How to Know If Refinancing Is Right for You
Sure, getting a lower interest rate rate is a huge component of refinancing, but you have to look at the option from several angles.
Think about your current situation as well as your future: How long will it take you to recover the cost of the refinance? Are you planning on moving soon? Will you even qualify for a significantly better rate? These low rates are certainly appealing, but they don’t mean much if you can’t qualify for them because of your credit history, income or debt. (You can see where your credit scores stand for free on Credit.com.)
It also depends what kind of loan you have. Birk said it might be a good time for FHA loan borrowers to refinance into conventional mortgages.
“They’ll typically need at least 5% equity and a qualifying credit score,” Birk said. “Conventional mortgages with a loan-to-value above 80% will require private mortgage insurance in most cases, but those costs usually run lower than FHA’s premium.”
If you decide a refinance will improve your financial situation, and you’re in the position to apply, that’s the reason to refinance, not just because current rates make you think it’s a good idea.
“Borrowers should compare lenders upfront in terms of price, yes, but also based on communication, responsiveness and actually applying for the loan,” Sheldon said, “because that’s the only way the lender can actually lock in [an] interest rate anyway.”
More on Mortgages and Homebuying:
- Why You Should Check Your Credit Before Buying a Home
- How to Find & Choose a Mortgage Lender
- How to Refinance Your Home Loan With Bad Credit