Lower Interest Rates, But Refinancing Still Difficult
This past week, the Federal Reserve announced that they will pour another $1.2 trillion into the economy, including buying $300 billion in long term government bonds. Part of the reason they are doing this is to keep mortgage rates low and credit available in an effort to revive the stalling housing market.
Interest rates are almost as low as they have ever been, with the average rate on a 30 year fixed mortgage around 5.25%. Many borrowers with outstanding credit are finding rates below 5% on the 30 year loan. Last week, mortgage applications increased by more than 20% compared to a week earlier. Over 70% of these applications were for people attempting to refinance existing loans, taking advantage of lower rates.
Not all of these applicants are getting approved for their loans however. Currently, about 60% of loan applicants are receiving the financing they’re looking for. This is about 20% lower than just 5 years ago, when 79% of loan applications were approved.
The quality of borrowers getting approved for mortgage loans has also increased as lenders scrutinize every application much more carefully than they have in the past. Only 15% of recent loans have been made to borrowers with credit scores lower than 650, compared with nearly 30% in 2006. Almost 40% of recent loans were extended to borrowers with credit scores higher than 750. Even applicants with pristine credit scores are being examined much more carefully before a loan is made.
Lenders are wise to be more careful, since falling home values make the loan-to-value ratio a much more important number than it used to be. Many homeowners interested in securing a lower rate are abandoning the idea of refinancing when they realize that the value of their home has fallen to the point that their LTV ratio has become too high to qualify for a new loan on the home. Many potential borrowers don’t even bother to fill out an application, feeling that there’s no reason to pay an application or appraisal fee when their home is worth considerably less than it was when they originally received their mortgage loan.
For borrowers interested in refinancing, keeping credit scores high is essential. Talk to your lender about programs and rates that are available that you might be able to qualify for. A responsible lender will look at your situation and let you know whether or not you’re likely to qualify for a loan before you are asked to pay any fees.
If you enjoyed this post, make sure you subscribe to my RSS feed!
Related Posts
