A recent streak of low interest rates has spurred refinance activity dramatically. In July 2014, refinances made up just 32% of the mortgage market. As of November 2014, 45% of all mortgage consumers were looking to drop their rate and payment with a refinance.
The recent rush is no surprise. Mortgage rates recently hit 19-month lows and have been hovering at or below 4% since mid-October.
Homeowners who have been waiting for lower rates now have them and are taking advantage before rates climb to more historically “normal” levels.
Refinance Numbers On the Rise
Each month mortgage origination software company Ellie Mae analyzes data from over half of the loan applications that mortgage brokers across the country run through its software.
Experts consider the findings from Ellie Mae’s report indicative of the market as a whole. And the market is shifting to a refinance-dominated landscape.
Home purchases gained ground through 2013 and 2014 as mortgage rates rose from 2012 lows. In May 2013, the market reached an important milestone: it was the first time in five years that purchase transactions outnumbered refinances according to the Mortgage Banker’s Association.
Yet a reversal has started. Sub-4% rates have encouraged homeowners to consider refinancing even if they have been denied in the past.
3 Types of Homeowners Now Taking Advantages of Low Rates
It makes a lot of sense for homeowners with rates higher than 4% to refinance. But within this higher-rate category are profiles of homeowners who have not yet refinanced.
Homeowners who have been denied in the past
Credit takes time to rebuild once damaged. Yet, no homeowner is forever banned from refinancing because of past credit mistakes.
Even a bankruptcy or foreclosure isn’t a death sentence to a mortgage approval.
Given enough time, consumers can prove that their poor credit history is behind them. It’s what lenders call re-established credit. Consumers who don’t have further derogatory credit within a certain waiting period are eligible to refinance.
For instance, a conventional loan requires just two years from the discharge date on a Chapter 13 bankruptcy. The refinance waiting period is only three years after a foreclosure if it was caused by an extenuating circumstance.
An FHA refinance may only require one year from a foreclosure, short sale or bankruptcy if the incident was caused by a loss of income due to the 2009 recession.
Refinance rates are now low enough to encourage homeowners to apply even if they have been denied in the past.
Homeowners who have already refinanced
Many homeowners refinanced early in 2014. Rates were low, hovering around 4.5%.
Yet, in an unexpected twist, rates dropped even lower.
The 30-year mortgage rate hit a 2014 low in December, dropping to 3.80%. Each week, mortgage rule maker Freddie Mac polls around 100 lenders across the country to establish an average rate. That average rate has held below 4% for the last seven weeks of 2014.
The sustained sub-4% rates have given homeowners a chance to calculate the numbers and establish that it makes sense to refinance again despite a recent refinance. Those with a mortgage just six to 12 months old could benefit by dropping their rate again.
No matter when a homeowner refinanced last, it could prove cost-effective to take advantage of recent rate lows.
Refinance hold-outs waiting for the “perfect storm”
Believe it or not, there are still homeowners with rates in the 6-7% range.
Despite rates in the 3’s and 4’s through years past, many wait for lower rates, only to watch rates rise before they take action.
Still others sincerely want to refinance, but just never get up the motivation to start. They figure the process will be more difficult than it’s worth.
The truth is that refinancing is a much easier process than the initial home purchase transaction. Often, refinancing can be done without an appraisal with the HARP, FHA streamline, or VA streamline options.
As far as getting started, it’s as easy as clicking here and completing a one-minute questionnaire. The rest of the process is guided and handled by a refinance lending professional.
Rates below 4% are some of the lowest rates available in history and might not be around for long. In fact, many lending experts predict rates to trend higher in 2015. Refinancing is simple and quick, so hold-outs, no matter what the reason, should at least see how much they can save each month.
Refinance Activity Could Rise Further
Refinance activity is expected to increase to a bigger portion of the overall mortgage market when Ellie Mae releases its December origination report.
As refinance activity increases, lenders cut rates to gain market share. Homeowners can take advantage of increased lender competition and turn it into a lower rate for themselves.
Homeowners shouldn’t wait too long. Low rates won’t last long-term, and lenders could get backlogged with higher volumes. Beat the rush and start the application process now.