Mortgage rates have been dropping steadily over the past few months, and refinancers have been taking advantage of them.
Refinances continue to grow in popularity across the country. In September, refinances made up 45% of all closed mortgages. This is the highest percentage share refinances have had in eight months.
Current homeowners have been noticing the trend of low rates, and it has lead them to refinance at a higher clip. Fortunately, rates are still holding near record lows, so those who haven’t capitalized and want to refinance can still get low rates.
Conventional loans have been a particularly popular option for refinancing. Last month, well over half of all conventional loans that closed were refinances. Refinances made up less than half of all closed conventional loans a recently as July.
The average rate on conventional loans has been dropping as well. The average 30-year rate for a conventional loans was 3.73% in September, as compared to 4.24% in September of 2015.
One reason refinances have been popular is due to the consistency of low rates in 2016. Rates haven’t been this low since 2013, and many home buyers are finding that a refinance works better for their financial situation.
However, rates won’t stay low forever. They’re bound to increase at some point, and it seems likely that mortgage rates will be higher in 2017 than they have been this year.
Mortgage Rates Continue To Drop
Average rates have dropped to their lowest level of the past 17 months according to Ellie Mae.
Each month, mortgage software company Ellie Mae compiles mortgage data that comes through their software and releases the information in their monthly Origination Insight Report. Their report covers about 75% of all closed mortgages, so it is seen as a trustworthy source of mortgage-related information.
It’s also important to note that closed loans are mortgages that were approved within a 90-day period.
Last month, rates dropped to an average of 3.75% across all mortgage types. Rates were even lower for FHA and VA loans, which had a rate average of 3.73% and 3.52%, respectively.
The low rate average is the main factor fueling the high clip of refinances. While the average rate reported by Ellie Mae is 3.75%, rates could potentially be even lower.
Those looking to refinance already have a mortgage, and if they’ve made all of their monthly payments then their credit score could have increased since they first got their mortgage. Higher credit scores translate to lower mortgage rates.
Refinancers aren’t the only ones taking advantage of low rates. Ellie Mae reported that 82% of all closed FHA loans were purchase loans, meaning they were used to purchase a home rather than refinances.
FHA is has become a more popular home buying option over the past year. Home buyers only need to have a credit score of 580, and the required downpayment can be as low as 3.5 percent.
Home buyers might start to find that there are more homes available than there were just a few months ago. There was a national shortage of housing throughout the busy summer buying season. But the summer season is over, so home buying could be much less competitive in many areas.
Rates Could Increase In 2017
The end of the year is quickly approaching, and 2017 could have higher rates than home buyers and homeowners are currently enjoying.
The main reason for this is the Federal Open Market Committee (FOMC) which is going to vote in November and December to raise the Fed rate.
It seems unlikely that the FOMC will increase rates during their November meeting, but there’s a good chance that they will raise rates in December. This means that rates will increase as the year ends.
HIgher rates leading into 2017 could affect all markets, including the housing market. As the Fed rate increases, mortgage rates could also begin to increase.
However, rates increased at the end of 2015, but mortgage rates have been enjoying near-record lows for a large portion of 2016.
The safest option would be to lock in on rates while they’re low. The economy is growing at a healthy pace, and barring any major setback, mortgage rates are all but guaranteed to increase as well.
Ellie Mae’s Origination Insight report gives valuable information to home buyers, but the data is a collection of mortgage rates from the previous month. This means that rates today could be higher or lower than those reported.
Home buyers and refinancers looking for the lowest possible rates will want to keep their eye on rate trends.