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    Home » Mortgage Refinance Demand Soars 94% Year-Over-Year as Interest Rates Drop Again 
    Mortgage

    Mortgage Refinance Demand Soars 94% Year-Over-Year as Interest Rates Drop Again 

    DunniBy DunniSeptember 6, 20245 Mins Read
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    Mortgage refinance rate drops
    Source: Ramon Pleas/Facebook
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    The mortgage refinance rates drop has reached record lows for the year. Indeed, most mortgage applications initiated in the past few weeks are for home refinancing. The reason for this new reality in the housing market is not far-fetched; interest rates have been declining in the past five weeks.

    An open house in the suburb
    Source: FreeChickenDinner/Reddit

    According to the Mortgage Bankers Association (MBA), 1.6% more people submitted a mortgage application last week than in the preceding one. Homeowners who bought their houses when the mortgage rates were high are simply trying to exploit the downward trend of interest rates. According to an analysis of refinancing applications filed last week, it was discovered that it increased by 94% year-on-year. 

    The decline in mortgage refinance rates indicates that folks are trying to beat down their monthly payments. The economy has been biting in the past few months, and everyone, including homeowners, is trying to trim off excess financial weight. 

    The Average Contract Interest Rate for 30-Year Fixed-Rate Mortgages  

    The MBA also reported a decline in the average contract interest rate for the regular 30-year fixed-rate mortgage. The fixed rate on the 30-year mortgage loan went from 6.44% to 6.43% in the past week. However, we cannot declare that the situation is outrightly better than what applied this time last year. This is because the mortgage basis point is still 0.78% higher than this time last year.  

    Word cloud with ‘refinance’ at the center
    Source: EpicTop10.com/Flickr

    A complex interplay of factors affects home financing trends in the US housing market. The drop in national interest rates is just one facet. There’s also the climb in mortgage applications intended for home purchases. Meanwhile, mortgages for home purchases remain low based on year-on-year comparisons. However, a trend that stands out among mortgage applicants is the preference for home refinancing over making new purchases. 

    According to an MBA economist, the increase in mortgage refinance rates clearly indicates that borrowers are trying to take advantage of low interest rates.

    ALSO READ: Mortgage Rates Are Dipping and Homeowners Are Running Against the Clock To Refinance Their Homes

    Application for Mortgage  

    Homeowners are assessing their financial standing and considering how much havoc high inflation rates have already wreaked. Most are opting to get a bargain on their current property rather than coughing up more to occupy a new one. So, while mortgage applications remain relatively the same, more applicants are toeing the refinancing route.  

    Calculator, spectacle, and a ballpoint atop a mortgage application form
    Source: Nick Youngson/Picserver

    For emphasis, mortgage applications for home refinancing rose by 94% year-on-year! In August alone, 46% of all mortgage applications were for that purpose. The annual comparison helps us see the big picture of how much mortgage applicants have swerved since last year. Judging by the mortgage refinance rate, we can hope the housing market is still active. Indeed, the market would likely swing back to full momentum once the economic conditions are encouraging.

    What Is Mortgage Refinancing?

    Refinancing a mortgage simply involves revising the initial terms that have governed the loan since its inception. Often, when borrowers seek to refinance their mortgage, it means the prevailing financial realities have changed since they applied for the loan. For example, the borrower’s personal finances may have improved or tanked, and they are looking to revise the loan payment schedule. 

    Stacks of coins on a graph sheet
    Source: ShapeshiftAI/Medium

    However, when it comes to changes in interest rates, borrowers seldom refinance their mortgage when rates shoot up. In such situations, they are at an advantage and may even consider selling their property at a profit. However, when the mortgage rate falls, most borrowers scramble to refinance and exploit better deals on their previous application.

    A third reason a borrower may want to refinance their mortgage is to switch their loan package from fixed to adjustable. 

    To refinance a mortgage, the borrower simply needs to approach the lender that initiated the last application; approaching a new lender is equally permissible. When the borrower’s intentions have been clearly stated, the lender will walk them through a fresh loan application. Subsequently, the terms highlighted on the new application will be reviewed and approved. If borrowers feel they’re victims of discrimination when applying for a mortgage refinance, they can file a complaint with the US Department of Housing and Urban Development.

    ALSO READ: 30-Year Mortgage Rates in the U.S. Drop to Lowest Level Since April 2023

    What Is the Current Refinance Rate? 

    The mortgage refinance rate varies depending on the gestation period of the loan. For example, the current mortgage refinance rate on a 30-year fixed rate mortgage loan is 6.38%. However, the figure that mortgage applicants should be concerned about is the annual percentage rate (APR). Here’s why: the APR covers the annual cost of servicing the loan and accompanying charges.

    An aerial view of a residential area
    Source: Newsweek Life/X

    The current APR for a 30-year fixed-rate mortgage refinance is 6.43%. Likewise, the 20-year, 15-year, and 10-year fixed mortgage refinance rates are 6.11%, 5.76%, and 5.71%, respectively.

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