After the Federal Reserve's pandemic-related rate drop in 2020 caused mortgage rates to reach all-time lows, the U.S has seen a strong housing market, with rising home prices and buyer competition amid limited inventory.
And while homebuyers faced several challenges to enter the housing market, homeowners were able to benefit. With the low interest rates, many homeowners could refinance their mortgages and save on their monthly payments.
But with recent data showing the possibility of a cooling housing market, read on to see why now could still be a good time to refinance your home loan. If you're interested in seeing how much you could save from refinancing your mortgage loan, visit Credible to use a refinance calculator to estimate what your savings could be.
Home price increases fall to single digits
After 12 straight months of double-digit annual home price growth, new data from Realtor.com from the week ending August 14 showed the U.S. housing market with three straight weeks of single-digit home price growth. The report also showed that more borrowers are listing their homes, bringing relief to the housing inventory shortages.
Median listing prices increased by 8.6% annually, marking the third week of single-digit increases, the data showed. This is half of the annual increase seen during the pandemic's peak, which was 17.2% in April.
"The COVID housing market has taken plenty of unexpected turns, but the last few weeks of data reflect a return to more normal seasonal patterns," Realtor.com Chief Economist Danielle Hale said. "Inventory declines continue to improve over last year, and while listing prices are still rising faster than usual, the pace has moderated considerably since spring.
"Part of what’s driving recent price trends is a shift in the mix of inventory, including an uptick in smaller and lower-priced home listings popular with first-time buyers," Hale said. "Looking forward, we’ll likely see more inventory and a retreat from recent months’ record-high prices as we head into the fall and winter months."
Homebuyers can take advantage of this relief and purchase a home as inventory begins to increase. Or if you're a homeowner, you can tap into your home’s equity through a cash-out refinance. Visit Credible to see what kind of interest rate you could get on a new home loan.
Mortgage refinance applications dropping
In another sign of a cooling market, new mortgage originations dropped to 3.78 million in the second quarter of 2021, a 3% decrease from the first quarter, a new report from ATTOM Data Solutions showed. This decline marked the first originations decrease since early 2020 and the first quarterly decrease in the second quarter since 2011.
This decrease came as a result of fewer homeowners refinancing their current loan, which dropped 15% from the first quarter of this year, according to the report. While refinance still made up the majority of mortgage originations in the second quarter, their portion dropped from 67% to 59% of all mortgages.
"The demand for home loans across the country shifted significantly in the second quarter as refinancing activity receded and home-purchase and equity loans increased," ATTOM Chief Product Officer Todd Teta said. "We haven’t seen that pattern for several years. The big increase in households looking to buy surely had a lot to do with that.
"And we may be getting to the point where so many homeowners have refinanced that the need for those deals is tapping out," Teta said. "We will see whether this is a momentary blip or a real trend over the next few months, which looks to be a really key period for the lending industry."
The latest survey from the Mortgage Bankers Association (MBA), for the week ending Aug. 13, 2021, showed a 3.9% decrease in mortgage activity from the week before. The refinance portion of this index dropped 5% as interest rates hit their highest level in a month. The MBA reported the 30-year fixed-rate mortgage reached back above the 3% mark to 3.06%.
But these interest rates are still at historic lows, and refinancing your current mortgage could still help homeowners save significantly on their monthly payments. Visit Credible to compare multiple lenders and loan terms at once and see how much you could save.
Why now is a good time to refinance
Although the housing market is showing signs of cooling, many homeowners could still benefit from a lower rate through a refinanced mortgage.
"Mortgage applications are cooling as compared to last year, yet remain at levels consistent with a strong housing market," Millionacres economist and author Sara Rutledge said.
Here are a few reasons now is still a good time to refinance your home loan:
Interest rates remain at historic lows: Although the MBA reports that mortgage interest rates have surpassed the 3% mark, they are still at historic lows and could help homeowners save by refinancing their home loan. Visit Credible to get pre-approved in minutes without affecting your credit score.
Refinance fee is removed: The Biden administration recently removed the adverse market refinance fee for mortgage refinances backed by Fannie Mae and Freddie Mac. Now, homeowners will save money on their closing costs or monthly mortgage payment after refinancing their mortgage. And Rutledge believes this could cause refinances to increase again.
"The good news is the pandemic-related 0.5% fee on loans backed by Fannie Mae and Freddie Mac was eliminated," Rutledge said. "This can amount to $1,000 in savings per loan and is likely to spur some additional interest in mortgage applications."
If you're interested in taking out a mortgage refinance for a lower monthly payment, visit Credible to speak to a home loan expert to discuss your financial goals and get all of your mortgage questions answered.
Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at firstname.lastname@example.org and your question might be answered by Credible in our Money Expert column.