Fewer Homeowners are Refinancing Homes – Here’s Why You Shouldn’t Either
Mortgage interest rates fell significantly last week, but that wasn’t enough to tempt homeowners into refinancing their mortgages. According to a report by the Mortgage Bankers Association, the total volume of home loan applications dropped 0.5 per cent last week, compared to the week before. The total mortgage activity was almost 13.5 per cent less than the same period a year ago.
Refinance Activity Slows Down
Refinancing is also becoming a less popular option among homeowners. Last week the total applications for refinancing home mortgage dropped to 37.2 per cent from 37.6 per cent the week before. Refinance activity was down 28 per cent in comparison to the same period last year when interest rates were much lower.
According to a study by CoreLogic, over 50 per cent of the homeowners in U.S. are paying less than 4 per cent in interest rates on their mortgages. Even people who are looking to take advantage of the rising home values, prefer taking out a second loan on their home’s newfound equity than apply for a refinance loan with higher interest rate. As refinance activity is decreasing, home equity lines of credit are becoming more popular.
Chief economist Mike Fratantoni said that that the ongoing trade war has shaken up the financial market, resulting in a decrease in mortgage activity and interest rates. He added that refinance applications on mortgage loans were at their lowest level in the past 20 years.
The current interest rates aren’t tempting first-time homebuyers either. According to MBA, mortgage activity increased 1 per cent last week but it was still 1.4 per cent below previous year’s levels.
Should You Refinance Your mortgage?
Lower interest rates are often a welcoming sign for homeowners looking to refinance their mortgage to slash their monthly payments. But the decision isn’t that easy to make and there isn’t a one-size-fits-all solution for every homeowner. Here are five reasons why refinancing may not be for you.
You Plan on Leaving the House
If you plan on moving out of your home within the next 10 years, refinancing might not be the right decision for you. The saving benefits of paying less interest only apply to homeowners who plan on living in their homes for the entire term of the mortgage. And even if you sell off your home within 5 years, you still have to pay all the fees associated with refinancing.
It’s Not Just About the Savings
Most people choose the refinancing option to tap into interest rates, but the saving benefits from lower monthly payments aren’t for everyone.
Do some calculations to determine how much you will save from refinance in comparison to how to much it will cost you. In most cases, you may be eligible for lower monthly payments but your loan term can be extended to five years or more, canceling out the saving benefits completely.
You Want to Switch to ARM
With interest rates going down, many homeowners are tempted to switch to adjustable rate mortgage to benefit from lower monthly payments. But it’s almost impossible to predict which direction the interest rates will go in the future. If the rates go up, you may end up paying more than you would have with fixed rate mortgage.
You Can’t Manage the Extra Costs
Refinance option can carry an extra cost burden if your home value drops in the future. With lower equity in a refinanced home, borrowers are required pay private mortgage insurance on top of their down payments until they reach 20 per cent home equity.
For example if you bought a home for $300,000 and paid off $40,000 on the mortgage, but if the value of the property suddenly decreased to $260,000, you’ll basically be left with less equity than at the beginning of the loan term.
Your job history and credit score also matter a lot when deciding whether or not to refinance. With a low credit score, it is almost impossible to qualify for a low interest rate, defeating the entire purpose of refinancing your mortgage.
More in Loans & Mortgages
Here Are Legendary Investor Warren Buffett’s Secret Tips on Buying and Selling Stocks Like a Pro
Warren Buffett is one of the richest men in the world. He’s currently valued at a whopping $83.2 billion placing him...June 5, 2019
Here’s What Every Real Estate Flipper Needs to Know
Sidney Torres, a self-made millionaire in his own right, made a name for himself renovating houses in New Orleans. He now...June 4, 2019
Did Beyonce Really Earn Hundreds of Millions From Her Uber Stocks? Here’s the Real Deal on the Matter
Beyonce’s fans love Queen Bey, there’s no doubt about that. But sometimes, their admiration of the pop diva can lead them...June 3, 2019
Tesla Stock is on a Downward Spiral But Elon Musk’s Salary Remain in The Billions — Here’s Why
Tesla founder and CEO Elon Musk is one of the most innovative minds of today. There’s no doubt about that. However,...May 30, 2019
Why is Elon Musk Taking Out $61 Million Worth of Mortgages? The Reason Will Shock You
Tesla CEO Elon Musk has done a lot of questionable things within the last few years. There’s his often puzzling Twitter...May 30, 2019
Here’s How Much Internet’s Beloved Grumpy Cat Earned When It Was Still Alive
On May 14, 2019, cat-lovers around the world mourned the untimely death of Grumpy Cat, the internet-sensation feline who has millions of fans and followers across...May 29, 2019
Why Most Millennials Delay Their Dream Of Buying a House Due to Student Loan Debt
Everyone wants to buy their dream house. Buying or owning a home is often taken as a milestone of success in...May 29, 2019
Huawei Confident To Make $100 Billion Before The End Of The Year
According to a Huawei rotating chairman, Eric Xu, the revenues of the Chinese technology giant will reach $100 billion in 2018....May 29, 2019
Kim Kardashian’s Instagram Salary Will Make You Want to Become a Social Media Influencer, like…Right Now!
The Internet has effectively changed marketing and advertising landscapes. The rise of social media platforms like Instagram and the influencers that...May 28, 2019