Low-Interest Rates Are Driving Homeowners to Refinance

Historic low interest rates causing homeowners to apply for new loans

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According to a weekly survey from the Mortgage Bankers Association, mortgage applications are up and the majority of them come from people wanting to refinance.

It's a trend Sr. Loan Officer Richard Camp, with American Financial Network, has noticed too thanks to current interest rates.

"I can tell you after doing this 11 years where the rates are at today, this is the lowest they’ve ever been," said Camp who also recently refinanced his Rockwall home.

"We were at 4.875 and we were able to refinance that loan and knock it down to 2.625, so that was like 45 % reduction in our interest payment," said Camp about his home.

He said they're seeing rates in the 2% range and said it's never been like that before.

"So not only are the low rates attractive for people buying houses, but it's also helping people who already have a house they love. Especially in these uncertain times, reduce their payments anywhere between $300 and $500 bucks," explained Camp.

"Mortgage rates continue to hover at record lows this fall. The 30-year fixed mortgage rate remained essentially unchanged at 3.01 percent last week, but rates for 15-year fixed-rate loans, FHA loans and jumbo loans all fell to new MBA survey lows," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting in a press release

According to the Associated Press, Freddie Mac reports the average rate on a 30-year loan declined to 2.78% compared to 2.81 % last week. The avg. 15-year fixed-rate mortgage remained around 2.32%

That's what's been driving up the demand for refinancing, but experts said it's important homeowners pay attention to the length of their new loan.

"A common mistake that people do is, five years into their 30-year loan , they refinance into another 30-year loan. So if you think about it, they are effectively having a loan for 35 years," explained Sriram Villupuram, an associate professor of finance and real estate at the University of Texas at Arlington.

"What people have to think about is in a scenario like today where interest rates have fallen quite a bit, can I refinance my 25-year balance into a 15-year loan? Meaning maintain my monthly payments but finish out the loan in another 15 instead of 25. So if I have the capacity to pay why do I want to stretch the loan out way to long and keep paying interest forever, so that’s a mistake people do make," said Villupuram.

"I would say get with a loan officer to run your numbers. Everyone has a scenario, everyone has an amount they can save but you also want to make sure what is your end goal? How long do you plan on being in the house? Do you plan on paying the house off sooner, or wanting to lower your overall payment?" explained Camp.

"I think that, you know, again, refinancing is a great opportunity and not only on the Home Mortgage side but also for business owners that have commercial real estate, whether it's owner-occupied or investment real estate. This is a perfect opportunity to bring that payment down and save thousands of dollars," said Rafael Kreklau who is a commercial real estate lender and also recently refinanced his home.

 "This is the best time to refinance if anyone is having a higher rate than I'd say 3%," said Krekalu.

Brittany Obert, who lives with her husband and two young kids in The Colony, took advantage of the recent rates too. They bought their home with a rate of about 4.25% to 4.5% three years ago, but recently shaved that number down.

“Now we are at 3% with the refinance, with zero cash to close, we actually had some money that came from that, being able to save, not having to pay one of those months, that was you know about $3,000 that we were able to use to buy new furniture or pay off other debt that we have," explained Obert.

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