Mortgage Rates Go Down, Refinancing Goes Up

With mortgage rates continuing to fall to record lows, the number of homeowners who are refinancing has spiked. According to Freddie Mac, the interest rate for a 30 year fixed rate mortgage this week was 4.32 percent. That’s the lowest that figure has been all year. And the rate for a 15 year fixed rate mortgage was at 3.5 percent, another record low.

Amid all the concerns of the stock market plummeting earlier in the week, these low mortgage rates provide a bright side to today’s uncertain economy. Unfortunately, low mortgage rates enough to help the flailing housing industry come out of its hole. Mortgage rates have now been falling for the last three years. Their decline hasn’t created a housing boom that many commentators have been expecting and these days many are hoping that housing prices will just stabilize.

The number of homeowners who have applied for a refinance on their homes has increased by 30 percent for the week ending on August 5, hitting their high for the year. The high number of homeowners who want to refinance is no surprise, however, when you realize that more than 60 percent of outstanding mortgages nationwide are still above 5 percent and were initiated before rates fell. Many homeowners have improved their credit scores and they would likely qualify for a lower rate. Even if they don’t qualify for rates as low as 4.32 percent of a 30 year mortgage (or 3.5 percent for a 15 year mortgage), they will likely qualify for a rate that is lower than they are paying now. However, nearly half of all homeowners who are paying a mortgage right now have less than 20 percent equity in their home. This will make it difficult for some to refinance unless they want to pay private mortgage insurance along with their monthly mortgage payment.

Another interesting trend right now is that many homeowners who are refinancing are opting for shorter payback terms. During the first quarter of this year, nearly 35 percent of those homeowners who chose to refinance switched from their 30-year fixed rate mortgage to a 20 or 15 year fixed rate mortgage. According to Freddie Mac, those numbers are the highest they have been in about seven years. Frank Nothaft, the chief economist with Freddie Mac, predicts many more people will choose to do that in the months to come.

Have you been thinking of refinancing your home with mortgage rates as low as they are? If so, are you planning on choosing a shorter term? Or what’s your strategy?

Click here to see mortgage rates where you live.