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.

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 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.

If home values drop in the future, homeowners with lower equity are required pay private mortgage insurance on top of their down payments

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.