Mortgage refinance demand plunges 52%. Have existing borrowers missed the boat?

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Higher mortgage rates make refinancing less and less viable.


Key points

  • Last week, mortgage refinance volume plunged 52% from the same period a year ago.
  • With mortgage rates rising, it may be too late for some borrowers to swap their existing home loans for new ones.

In the middle of 2020, when mortgage rates fell to record lows, many homeowners rushed to refinance their mortgage to lower monthly payments. And refinancing activity remained strong through 2021 as mortgage rates rose above record highs, while still remaining fairly competitive.

But the start of 2022 has brought higher mortgage rates into the mix. And that caused a noticeable setback on the refinancing front.

For the week ending Feb. 4, mortgage refinance volume fell 52% from the same period a year ago, according to the Mortgage Bankers Association. To be fair, overall mortgage applications – including buy-to-let mortgages – fell 39.6%. But when we compare an 11.4% drop in mortgage purchase volume to a 52% drop in refinance volume, the difference is stark.

If you haven’t refinanced your mortgage yet, you may be wondering if it’s too late. And the answer? It’s possible.

Does refinancing still make sense?

Some mortgage borrowers still have the opportunity to save money by refinancing a home loan. But if you already have a low interest rate on your mortgage, refinancing might not be profitable.

As of this writing, the average 30-year refinance rate is around 4%. So if your current mortgage interest rate is 4.25%, you’re not going to save much from refinancing, especially when you factor in closing costs.

Just as you pay closing costs when you take out a mortgage to buy a home, these costs also apply when you refinance a home loan – and they can be significant, up to 5% of your mortgage amount.

So let’s say refinancing today means saving $50 a month on your monthly payments. If you pay $6,000 in closing costs to save that $50 a month, it will take you 120 months, or 10 years, to break even. It just wouldn’t make sense.

The only situation where refinancing could pay off

While you might not be reducing your mortgage interest rate much by refinancing today, the only scenario in which it might still make sense is if you’re looking to tap into the equity in your home and cash in on the cash. money from your house.

Today, borrowers are sitting on a record level of home equity. So if you have a major renovation to undertake or another important goal to achieve, you may want a cash refinance, which allows you to borrow more than the remaining amount of your mortgage.

Even with today’s refinance rates higher than last year’s, a cash refinance is still an affordable way to borrow, especially when compared to a personal loan. And it can be more attractive in terms of interest rates than a home equity loan.

Although many borrowers have missed the boat when refinancing, that doesn’t mean it’s too late for you. Ultimately, you need to analyze your own numbers to see if you can qualify for refinancing at today’s rates.

A Historic Opportunity to Save Potentially Thousands of Dollars on Your Mortgage

Chances are interest rates won’t stay at multi-decade lows much longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger on buying a new home.

Ascent’s in-house mortgage expert recommends this company find a low rate – and in fact, he’s used them himself to refi (twice!). Click here to learn more and see your rate. While this does not influence our product opinions, we do receive compensation from partners whose offers appear here. We are by your side, always. See The Ascent’s full announcer disclosure here.

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