Mortgage rates drop to six-month low, refinances rise higher - Movement Mortgage Blog

The popular 30-year fixed mortgage rate fell back to the lowest level since February last week, and the 15-year fixed set a record low according to CNBC. That sent borrowers to their lenders, looking to save money on their monthly payments.

Applications to refinance a home loan jumped 9% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. They were still 10% lower than a year ago. The refinance share of mortgage activity increased to 67.2% of total applications from 64.9% the previous week.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) decreased to 3.01% from 3.11%, with points decreasing to 0.34 from 0.43 (including the origination fee) for loans with a 20% down payment. The average rate on the 15-year fixed set a new low of 2.36%.

Applications for a mortgage to purchase a home fell 2% for the week and were 18% lower than a year ago. That was the second week of declines and the lowest level since May 2020. Purchase applications have now been lower on an annual basis for the past three months.

“Potential buyers continue to be put off by extremely high home prices and increased competition,” said Joel Kan, MBA’s associate vice president of economist and industry forecasting.

“On the other hand, if the Fed says the recent surge in Covid cases was on their radar and that there hasn’t been any reconsideration of ‘late 2021’ tapering goals, rates could definitely pop higher,” wrote Matthew Graham, chief operating officer at Mortgage News Daily.

Borrowers get more options as foreclosure deadline nears

With the foreclosure moratorium for federally backed mortgages set to expire next week, the Biden administration is giving borrowers additional options to reduce their mortgage payments, according to HousingWire.

The Department of Housing and Urban Development (HUD), Department of Agriculture (USDA), and Department of Veterans Affairs (VA) will give homeowners options to reduce their monthly principal and interest by lengthening the term of the mortgage, bringing the agencies “closer in alignment with options for homeowners with mortgages backed by Fannie Mae and Freddie Mac,” a White House press release said.

The ban on foreclosures for federally backed mortgages will expire on July 31, after the Biden administration extended it a final month. The enrollment period for forbearance will conclude at the end of September.

Approximately 1.75 million homes are still in forbearance. For borrowers who can resume paying their mortgage, federal agencies will allow them to move their payments to the end of their mortgage. But the White House said some homeowners will need “deeper assistance” to become current and keep their homes.

“In order to ensure a stable and equitable recovery from the disruptions of the COVID-19 pandemic and prepare for homeowners to exit mortgage forbearance, the Biden-Harris Administration is taking action to keep Americans in their homes and support a return to a more stable housing market,” the White House said.

For borrowers unable to make monthly payments after the foreclosure ban expires, HUD will give servicers the ability to lengthen the mortgage term. Borrowers could see their mortgage terms extended to 360 months at market rate, to reduce their payments by 25%. In addition to a term extension, borrowers could receive an interest-free subordinate mortgage not due until after the first mortgage is paid off, otherwise known as a partial claim.

HUD will offer a partial claim to borrowers who can start making their mortgage payments again.

The USDA will also offer new options to help borrowers attain a 20% reduction in their payments. The tools include an interest rate reduction, term extension and a mortgage recovery advance, to help cover past due mortgage payments and related costs. The options can be used separately or combined.

There are also options for VA borrowers to reduce their monthly payments after. The VA can purchase up to 30% of borrowers’ unpaid principal balance and arrearages, and provide an interest-free subordinate loan similar to a partial claim. Servicers can also extend the loan term to up to 40 years.

In addition, the Homeowners Assistance Fund provides $10 billion to states, D.C., territories, and tribes for relief to COVID-impacted homeowners after the foreclosure ban expires. In addition to the payment reduction options, homeowners can use those funds to pay mortgage, homeowners’ insurance or utilities. Those with federally backed mortgages and borrowers whose mortgages are not backed by federal agencies will have access to the relief funds.

Ginnie Mae said that its new securities pool for mortgages with a 40-year term will be up and running later this year, giving federal agencies the flexibility to extend mortgage terms, if they choose to do so.

More than 1 million Americans are behind on housing payments. Here’s how to get back on track:

An estimated 13.4 million Americans — or 6.2% of all U.S. adults — are not current on their rent or mortgage, according to the U.S. Census Bureau’s latest Household Pulse Survey. 

As reported by Fox Business, among those in nonpayment are individuals who have slight or no confidence in making their next payment on time, and a third (32.9%) report that eviction or foreclosure in the next two months is likely. And to make matters worse, 12.3% of all U.S. adults expect someone in their household to experience a loss in employment income sometime in the next month, the survey found.

Here are a few tips for getting back on track:

For homeowners: refinance your mortgage to lower your monthly payments

Your home is likely the most expensive thing you own. The average individual’s mortgage debt was $208,185 in 2020, according to data from Experian. You may be able to save hundreds on your monthly mortgage payment by refinancing to a lower interest rate. Mortgage refinance rates are holding steady near record lows, which makes it a great time to refinance your mortgage and save money.

You could also consider refinancing to a longer-term mortgage, which will further spread out the total cost of your loan and lower your monthly payment even more. But keep in mind that a longer mortgage term may increase your total cost of borrowing.

For renters and homeowners: consider refinancing other debts

Whether you own your home or rent, you may be able to refinance other debts to make it easier to afford your monthly housing payment. You can potentially save on your monthly loan repayment by refinancing your student loans and consolidating your credit cards.

  1. Student loan refinancing

    The average monthly student loan payment is nearly $400, according to Credible, but yours could be significantly higher depending on your career. The average loan payment is more than $1,700 among law school graduates and $3,500 for medical school graduates, for example.

    A simple way to cut down on your monthly expenses is to refinance your student loans to a lower interest rate. Keep in mind that you should only refinance private student loans right now, because refinancing federal student loans makes you ineligible for hardship forbearance, income-driven repayment and even student loan forgiveness.

    Student loan refinancing rates are near record lows so you can potentially save hundreds of dollars on your monthly student loan payment. You may even be able to spread your student loans over a longer loan term, which can significantly lower your monthly payment and help you free up money in your budget to put toward housing expenses.

  2. Credit card consolidation

    Many Americans rely on credit cards to make ends meet during times of financial hardship, but high-interest credit card debt can make a big dent in your budget and make it harder to afford necessary expenses like rent or a mortgage payment.

    If you’re struggling to keep up with credit card minimum monthly payments, consider consolidating your credit card debt with a personal loan. Unlike credit cards, personal loans have low, fixed interest rates, which can translate to lower monthly payments. Refinancing to a longer repayment term can help you achieve an even lower monthly payment but it will increase the total amount of interest paid.

    A personal loan is a type of unsecured loan that doesn’t require collateral. But to determine eligibility and interest rates, lenders rely more heavily on your financial history, such as your credit score and debt-to-income ratio (DTI). Be sure to consider fees, like origination fees, when deciding whether or not to borrow a personal loan to pay off credit cards. You can check your estimated personal loan interest rate without impacting your credit score to see if credit card consolidation is worth it.

Weekly Mortgage Rate Update

As the economy works to get back to its pre-pandemic self, and the fight against COVID-19 variants unfolds, owners and buyers continue to benefit from some of the lowest mortgage rates of all-time. Largely due to the current environment, the 30-year fixed-rate remains below three percent for the fifth consecutive week while the 15-year fixed-rate hits another record low.

The Freddie Mac weekly survey shows the average rate for a 30-year fixed mortgage is 2.8%, which is 0.02 points higher than last week, and down 0.19 points from this time last year.


About the Author:

Movement Staff

The Market Update is a weekly commentary compiled by a group of Movement Mortgage capital markets analysts with decades of combined expertise in the financial field. Movement's staff helps take complicated economic topics and turn them into a useful, easy to understand analysis to help you make the best decisions for your financial future.