As mortgage rates start to creep upward, refinancing surges

Ethan Rotberg
·3-min read
As mortgage rates start to creep upward, refinancing surges
As mortgage rates start to creep upward, refinancing surges

After a holiday lull, refinance fever came roaring back last week, according to a new report, with mortgage refi applications surging to their highest mark since March.

Refinance requests are pouring in at nearly double the pace of a year ago. But even as those applications soar, experts say millions more homeowners still need to refinance to one of today’s rock-bottom rates and slash their monthly mortgage bills.

Modest increases in mortgage rates haven’t dented the demand for loans. But with changes in the political landscape threatening to push rates higher in the weeks to come, borrowers might run out of time to land super-cheap home loans.

Mortgage applications rise, led by refinances

man giving paper application facing camera
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Mortgage applications increased a whopping 16.7% in the week ending Jan. 8, the Mortgage Bankers Association (MBA) reported Wednesday.

Demand for refinances rose 20% from a week earlier, and those loans accounted for 74.8% of total applications, up from 73.5% the previous week.

In the MBA’s weekly survey of lenders, the average for a 30-year fixed-rate mortgage crawled up to 2.88% last week, from 2.86%. Experts noticed rates rising after U.S. Senate runoff elections in Georgia gave Joe Biden a Democratic-controlled Congress, potentially paving the way for more government spending.

Rates have taken an even bigger leap in the weekly survey from mortgage giant Freddie Mac, released on Thursday. It shows 30-year fixed loans have jumped to an average 2.79%, from a record-low 2.65% last week.

“The expectation of additional fiscal stimulus from the incoming administration, and the rollout of vaccines improving the outlook, drove Treasury yields and [mortgage] rates higher,” says Joel Kan, the MBA’s forecaster.

But, going against the trend, 15-year fixed-rate mortgages — popular for refinance loans — dropped to a record-low average of 2.39% in the industry group’s survey.

Applications for new, homebuyer mortgages — called “purchase loans” — jumped 8% last week, the MBA says, and were up 10% from the same week a year ago.

Homeowners do the refinance dance

Cheerful active romantic couple wearing pajamas dancing in bedroom together,
fizkes / Shutterstock

"Even with the rise in mortgage rates, refinancing did not slow to begin the year, with the index hitting its highest level since last March," adds Kan.

Refi applications have increased 93% versus this time last year, but many good refi candidates are still procrastinating.

More than 19 million mortgage holders could save an average $308 per month by refinancing now, according to the mortgage technology and data provider Black Knight. Experts say it’s worth it if you can get a new rate that's at least 1 percentage point below your current rate.

You might lower your mortgage bills even if your loan is just a year old — especially if you have a solid credit score and at least 20% equity in your home.

If you want to find a spectacularly cheap mortgage before rates go any higher, you must shop around. Rates can vary from one lender to the next, but multiple studies have shown that when you compare a minimum of five rate quotes, you can save thousands of dollars over the life of your loan.

Use those same comparison shopping skills when you sign up for or renew your homeowners insurance. Get quotes from several insurers to find the lowest possible price on the coverage you need.