The bullet mortgage refinance train has yet to chug into the station…or slow down for that matter. With rates continuing to tumble more and more homeowners are jumping on the refinance bandwagon in an effort to slash their monthly mortgage payments and take advantage of rates that won’t be seen again for years to come.
According to the Mortgage Bankers Association, the overall index of loan applications rose 2.3% this week after experiencing a 3.9% decline last week.
Carrying the mortgage increase are refinances. Refinances alone increased 3.9% after a 7.2% fall. However, the home purchase index dropped 0.8% last week after inching up by 3.1%.
Americans are refinancing their homes en mass as the share of refinance applications rose to 71% compared to last week’s 70.3% increase.
Homeowners are finding that the costs to refinance their home are nominal compared to the return they receive with a lower rate.
For example, the current 30 -year fixed rate decreased to 4.82% last week (from 4.93%) making borrowing costs on a $100,000 loan approximately $525.27 or $22.00 less than what the borrower would have paid the prior week.
Obama Stimulus Plan Contributes to Refinance Increase
The Obama mortgage refinance stimulus plan may be contributing to the increase in refinance applications. Both HARP (home affordable refinance program) and FHA Streamline Refinance are helping more borrowers throw their hats into the refinance arena.
Both programs provide refinance means for Americans who have experienced hardships from the current recession. Those trying to recover from hitting tough financial times or with poor credit can turn to one of these programs in an effort to lower their monthly payments.
The idea behind both programs was to provide relief to all borrowers, not just those with stellar credit. Because mortgage refinance may be the only way some homeowners can stay in their home, both programs have been beneficial to the nine million Americans trying to find the means to stay in their home.
Is Mortgage Loan Refinance Right for You?
While it’s tempting to hop on the refinance bandwagon, homeowners should consider whether going through the refinance process will be beneficial in the long run. BankRate Monitor suggests that homeowners consider several aspects of their current loan situation before plunging into a refinance:
- Find out if you have 20% of equity in your home. You’ll need to purchase mortgage insurance if you don’t have at least 20% equity and the difference in cost could squash refinance savings
- Examine your credit score in order to receive the lowest rate. Borrowers with scores under 620 may have trouble qualifying for a loan
- Consider how long you plan to stay in your home. For long term homeowners, refinancing is a good idea because it may take a few years to see a return in your investment
- Your current loan type (adjustable or fixed) may help you determine if you should refinance. If you have an adjustable or ARM, now may be the best time to revise your loan to a fixed rate product
Additionally, borrowers should interview a few lenders before signing on the dotted line. Approach each lender with a checklist of features that are important to you and see which areas match your requirements. Sometimes the lender with the lowest rate may not accommodate some of your biggest priorities.