Mortgage refinance applications have been increasing lately, leading many to consider if now is a favorable time to do so. With mortgage rates remaining near historic lows, and more homeowners regaining equity, it’s no real surprise that more Americans are considering a refinance – whether they want to switch from an adjustable rate to a fixed rate, or simply lower their rate altogether.
More People Are Refinancing
According to the Mortgage Bankers Association (MBA), mortgage applications decreased slightly the week of December 16. With only a 1.1 percent drop, it wasn’t much for lenders to be alarmed over. However, what’s interesting is that the refinance index increased 1 percent from the previous week, bringing the refinance share of mortgage activity to 60.7 percent of total applications. That’s more than half of all mortgage applications, which indicates that more people are refinancing than purchasing right now. And with only a 1 percent increase last week, we can safely presume this trend has been building for several weeks now.
People are backing away from ARMs
Furthermore, the adjustable rate mortgage (ARM) share of mortgage activity decreased to 6.0 percent of total applications. Such a low number could indicate that more people are wanting to refinance from an ARM into a fixed rate mortgage, which would be logical, since mortgage rates are continuing to stay low. Even a few slight increases in mortgage rates may have been enough to prompt ARM borrowers to refinance into a fixed rate mortgage before rates rise – especially if they were nearing the end of their introductory rate period.
With most ARM loans, the borrower is given a set period of time (usually 3, 5 or 7 years) to enjoy a low set rate. Once that time period is over, the mortgage rate is subject to adjustment, usually once per year for the remainder of the loan. So, for example, if a homeowner with a 7 year ARM was nearing the end of his seventh year, he may be wise to refinance into a fixed rate mortgage to ensure that he locks in a low rate.
Considering the Break Even Point
That being said, it’s difficult to say for sure whether or not it’s a good time to refinance. Every homeowner’s situation is different. And, keep in mind that refinancing will likely cost something, so you’ll need to consider at what point will the benefits of the refinance outweigh the costs. This is usually referred to as the break even point.
The break even point on a mortgage refinance tells you when the costs and the savings of your refinance will be equal or “break even.” Beyond that point is when you will begin to actually save money due to the refinance.
Because the break even point may not occur for quite a while, most homeowners do not refinance unless they are planning on owning the home for several more years. To find out the break even point for you home refinance, you can use a break even point calculator online, or simply call a mortgage lender and have them run the numbers. At Luxury Mortgage, we can help you evaluate your home’s equity, your budget and whether or not refinancing makes sense for your situation. Give us a call today for a free rate quote and refinance consultation.
The Bottom Line
Yes, market conditions seem to indicate that refinancing now could be a smart move – for certain homeowners. Before you make up your mind for good, speak with a mortgage lender you can trust to get more information on refinancing in today’s marketplace.
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