Mortgage applications overall are falling, but the trend in April 2014 is that refinancing applications are falling even faster, masking occasional rises in purchase applications. Economists with Freddie Mac claimed in a February 2014 report that there is a significant demand for refinancing waiting to be met. Yet refinancing applications dropped significantly at the end of 2013 and beginning of 2014.
If there really is demand, what are these homeowners waiting for? After all, mortgage interest rates, while higher today than 18 months ago, are still low by historical standards.
Are you in this group of refi procrastinators? If so, the chances are you are there for one of two reasons: you don't qualify for a refinancing – or you don't think you do.
New rules for mortgages from the Consumer Finance Protection Bureau (CFPB) took effect in January 2014, giving lenders a greater responsibility to evaluate the overall ability to repay a loan, and establishing the Qualified Mortgage rule protecting lenders from lawsuits in case of borrower default. Banks are naturally more cautious in lending under these conditions.
However, refinancing is a relatively profitable venture for banks, and they are beginning to loosen and stretch their criteria to accommodate more refinancing efforts (as well as new home purchases). If you did not qualify recently, or assumed you would not qualify, you should probably re-evaluate your situation. Here are some additional factors to consider in your reevaluation:
Interest rates – As noted above, mortgage rates are still quite attractive by historical standards. While somewhat higher than one year ago, they are roughly equal to rates of three years ago. Although it is impossible to predict future rates with certainty, most experts predict rates will be higher in one year than they are today. Thus, postponing your refi could be costly over the long haul.
- Rising Home Prices – Home prices are rising, which can help those who were underwater (or nearly so) meet refinancing criteria. As your home value rises, your LTV (Loan-to-Value) ratio decreases, which is one of the primary criteria for loan qualification. You may qualify for a refinancing now – and if you did before, you may qualify for a better interest rate.
- Alternate Programs – The Home Affordable Refinance Program (HARP) has been extended again, now scheduled to end on September 30, 2017. This program was targeted at helping people who were underwater (owing more than their house was worth) qualify for refinancing, as long as they stayed current with their payments.
The FHA also offers a FHA Streamline refinance, which was designed to allow FHA-backed loans to refinance without the need for reappraisal, credit score checks, or even verification of income and employment status. In this case, there must be a tangible reason known as a Net Tangible Benefit, such as reducing payments by at least 5% (combined principal, interest and PMI). The VA has a similar streamline program with even more favorable terms if you qualify.
In essence, the government is extending as many programs as possible to encourage refinancing efforts, especially toward lower-income borrowers.
If you are considering refinancing, it is time to take another look at your options for lowering your payments or saving on overall interest costs – and if you can get better terms, why wouldn't you?
Take advantage of the market while you can, because it won't stay this way. Interest rates will eventually raise again – don't get left out.