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August 13th, 2010 (Modified on January 30th, 2013)

Refinancing getting cheaper, but still not easier



Any time there’s a wave of refinance or purchase activity — which usually occurs when mortgage rates are low — we warn borrowers of the “Dangers in playing the mortgage rate waiting game.” Low rates don’t trigger automatic activity for everyone. While some borrowers jump at the opportunity to lock in at a low rate, others like to wait and see just how low rates will far before they make a move. Like any gamble, there’s risk in doing so.

For weeks now, we’ve seen mortgage rates fall to all-time low after all-time low. Some of my recent headlines have shown just how uneventful, and frankly unproductive, this era of historically-low mortgage rates has been: “What good are (even) lower mortgage rates,” “Low mortgage rates, slow growth: same old story,” “It takes more than just low mortgage rates.”

However, some mortgage lenders are encouraged that these rock-bottom rates are finally starting to drum up some serious activity, mainly in the refi department. It’s more than just the rates that are attracting refi customers nowadays, notes Nick Timiraos of the Wall Street Journal, it’s the fact that refinancing is getting cheaper:

One reason activity could grow stronger is that today’s rates are not only lower, but refinancing has become cheaper. That is because investors have begun paying more for mortgage bonds than in the past, enabling lenders to use this additional money to cover some refinancing costs that borrowers would traditionally bear.

“Usually you have to balance the lower rate with the cost of refinancing because you’ve got to pay the fees. That’s changing,”  [Michael Menatian, president of Sanborn Mortgage Corp. in West Hartford, Conn.] said. “This could open the door for the vast majority of people who can qualify.”

Rates & Costs Don’t Matter for Many

Four percent interest rates and cheap refinancing aren’t worth a lick if you can’t qualify. Hundreds of thousands of borrowers can’t refinance either because they’re underwater on their loan, their credit scores aren’t high enough or they don’t meet income qualifications. “For these borrowers, today’s mortgage rates have proven to be little more than an attractive nuisance,” said HSH VP Keith Gumbinger.

From the Wall Street Journal:

“The irony is that it’s terrific for people who have jobs—it’s real economic stimulus. But for the guy who is struggling, he’s un-lendable,” said Brian Wickert, a mortgage banker in Butler, Wis.

Around 60% of all borrowers with a 30-year fixed-rate loan could lower their rate by one percentage point given current rates, said Mahesh Swaminathan, senior mortgage strategist at Credit Suisse. But only about 38% could actually qualify for a refinanced loan because of the stricter loan standards, he said.

It was well over a year ago when we first warned readers about the dangers in playing the mortgage rate waiting game. For those borrowers out there who can refinance their rate at least one percent lower with today’s rates should jump at the opportunity if you qualify. You can click here to begin your search for the lowest mortgage rates in your area.

READERS: Share with us your recent refinance story.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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