Lenders, like any other business owners, like to hold onto their good customers. One way to make sure they don’t lose borrowers who consistently make their mortgage payments on time to another lender is to proactively offer to refinance their mortgage to a lower rate. While it may be flattering to be offered a refinance, you may want to take the time to compare your lender’s offer with other available mortgage programs.

Refinancing options

If you haven’t already been considering a refinance, you may be unprepared to make an educated choice about the offer from your lender. Before you jump at the chance for lower payments, you’ll need to look into the cost of refinancing. A home refinance is a new loan with closing costs, so even if you are offered a “no-cost” refinance, the closing costs will have to be covered by a slightly higher interest rate. Otherwise, you may need to increase your loan balance or pay cash for the loan fees.

Some other considerations:

1. Decide how long you intend to stay in your home. If you plan to sell in a few years, you may be better off not refinancing at all because of the costs.
2. Decide on your goals for a refinance:

• If you want lower payments, you may want to refinance into another 30-year home loan. However, you should realize that you will be paying more in interest over the life of the loan by extending your payments.
• If you want to pay off your loan earlier, consider a 20-year or a 15-year or a 10-year loan to see which payments fit your budget.

No matter what you decide your goals are, you should take the time to compare mortgage rates from more than one lender to be sure you are getting the best possible deal.

 The Mortgage Bankers Association (MBA) says that applications for a home refinance decreased 0.7 percent for the week ending April 27, 2012 and the share of mortgage applications for a refinance rather than a purchase application dipped to 72.6 percent.

According to HSH.com, the average interest rate for a 30-year fixed-rate home loan was 4.17 percent, while the average FHA 30-year fixed-rate loan declined to a record-low 3.80 percent. Mortgage rates were low for 15-year fixed rate loans, too, at an average of 3.41 percent, while a 5/1 hybrid adjustable rate mortgage averaged 2.97 percent.

Refinancing and mortgage rates

While low mortgage rates are one driver of refinancing applications, homeowners have a variety of reasons to apply for a new home loan as well as a variety of reasons to choose not to apply. When mortgage rates are low, you may want to compare your options for refinancing between a 30-year or a shorter term loan. You can use a refinance calculator to compare different payment options. For example, if your new mortgage payments are too high on a 15-year home loan, you may want to look into the option of a 20-year mortgage to see if the payments are affordable. The advantages of a shorter loan term are two-fold: you’ll pay off your home entirely faster and you’ll pay thousands of dollars less over the life of the loan.

If your goal is simply to reduce your payments, refinancing into another 30-year fixed rate home loan is your best bet.

Some homeowners assume a refinance is not an option because of credit challenges or low equity, but a wide variety of loan programs are available for homeowners, including an FHA loan, which typically requires a credit score of 640 or above and home equity of 2.5 percent. FHA insurance premiums will add to the cost of your loan, but you should have a lender check the numbers to see if you can save. If your issue is lack of equity, you may qualify for a new loan under the expanded Home Affordable Refinance Program (HARP).

Check with a lender to find out your options for a refinance before mortgage rates rise again.

While mortgage rates remain at near-record lows, the Mortgage Bankers Association (MBA) reported that for the week ending April 20, 2012, the number of refinance applications decreased by 5.6 from the previous week. Acknowledging the role of government mortgage programs in the market, the MBA split conventional and government refinance application data to reveal that conventional refinance applications declined by 6.1 percent, while government refinance applications declined by 2.1 percent.

According to HSH.com, average mortgage rates on a 30-year fixed-rate home loan were 4.19 percent last week, while average rates on a 15-year fixed-rate home loan were 3.44 percent.

Mixed economic news, including fewer new and resale home sales than expected, kept mortgage rates low.

Refinancing and home prices

Refinancing approvals are based not only on your creditworthiness, but also the value of your home. The Case-Shiller Home Price Index, released on April 24, showed a decline of 0.8 percent nationwide from January 2012 to February 2012. In addition, the Index showed a price drop of 3.5 percent in 20 cities from February 2011 to February 2012. While these price drops are disheartening, they don’t necessarily reflect your local market or your home value. You can contact a Realtor to get an estimate of your home value to see if you can qualify for a conventional refinance.

If you are underwater on your home, owing more on the mortgage than the home value, you may qualify for a government-supported Home Affordable Refinance Program (HARP) mortgage or an FHA refinance. You can use a calculator to estimate your refinance options and shop around for mortgage rates at sites such as HSH.com or Shoprate.com.

The Mortgage Bankers Association (MBA) reported that that refinance applications rose by 13.5 percent compared to the previous week and the refinance share of all home loan applications increased to 75.2 percent. Lower mortgage rates were a contributing factor to the resurgence of refinance activity, since borrowers may have been surprised earlier in April and late March when mortgage rates rose slightly. The extended period of low mortgage rates may have lulled some borrowers into assuming interest rates would always hover well below five percent.

According to HSH.com, mortgage rates averaged 4.18 percent for a 30-year fixed-rate home loan during the week ending April 13, reaching again the record low rate. Average rates for a 15-year fixed-rate home loan were 3.42 percent, down from 3.54 percent the previous week and mortgage rates for a 5/1 adjustable rate mortgage (ARM) dipped below three percent to 2.99 percent.

Refinancing with HARP

In addition to lower mortgage rates, some of the refinance activity is tied to HARP.

“Renewed concerns about sovereign debt in Europe led to a drop in rates last week, with the 30-year rate tying our survey low, reached in early February.  Refinance activity picked up in response, increasing 13.5 percent for the week.  Participants in our survey indicated that about 32 percent of this refinance volume was for HARP loans,” said Jay Brinkmann, MBA’s chief economist and senior vice president of research and education. 

If you are considering refinancing but have delayed because you may be underwater on your home loan, contact your lender to ask about the option of refinancing with HARP to lower your monthly payments.

The Mortgage Bankers Association (MBA) reports that applications for a home refinance decreased 3.1 percent compared to the previous week, and the refinance share of all applications dropped for the eighth consecutive week to 70.5 percent.

According to HSH.com, average mortgage rates dropped slightly to 4.30 percent for a 30-year fixed-rate mortgage and to 3.54 percent for a 15-year mortgage. The average rate for a 5/1 adjustable rate mortgage (ARM) was 3.05 percent.

Economic reports and refinance rates

The decline in the number of refinance applications could be tied in part to the extended period of months of low mortgage rates. Homeowners with an interest rate above 5.5 or six percent have had months to refinance into a lower mortgage rate, so it can be speculated that those who have not refinanced may have credit challenges or are underwater on their home loan, owing more than the property’s value.

Plenty of homeowners are also unemployed or are underemployed which could also make them ineligible for a refinance.

Last week’s Labor Department report was unexpectedly weak, with just 120,000 new jobs created in March, half the number of jobs created in February. Unemployment coupled with higher gas prices are a drag on the American economic recovery, while continued concerns over the debt crisis in Europe fuel global economic worries. The Federal Reserve’s recent release of committee reports shows that the economy continues to recover, but at the hoped-for pace.

If you are interested in refinancing but are underwater or have credit challenges, you still may want to consult with a lender to discuss your opportunities to refinance into an FHA home loan or one of several government programs designed to allow underwater homeowners to refinance.

Homeowners interested in refinancing may also have felt pressed into action to beat the impending increase in insurance premiums on FHA loans. According to the MBA, the Refinance Index rose by 4.0 percent over the previous week. Interestingly, mortgage applications for a home purchase rose by 7.2 percent over the previous week, indicating an improving housing market. As home purchases increase, eventually home values will rise in a natural reaction to supply and demand. If you have been waiting to refinance until your home value rises, any improvement in the housing market should be welcome.

“Applications to buy a home picked up last week, and are running more than two percent above the level reported at this time last year.  Home purchase applications for conventional loans are now about 10 percent above last year’s level,” said Michael Fratantoni, MBA’s vice president of research and economics.  “Applications for government loans increased by more than 10 percent over the week, for both purchase and refinance, likely spurred by borrowers seeking to apply before scheduled increases in FHA mortgage insurance premiums at the beginning of April.” 

Mortgage choices for refinancing

Mortgage rates declined slightly during the week ending March 30. According to HSH.com, the average rate for a fixed-rate home loan was 4.33 percent, while the average rate for a 15-year mortgage was 3.56 percent. For homeowners with a specific pay-off date for their mortgage or those who are willing to risk mortgage rates rising in the future, a 5/1 adjustable rate mortgage (ARM) averaged 3.07 percent last week.

Even with low mortgage rates, homeowners who are underwater may be unable to refinance unless they qualify for the government’s Home Affordable Refinance Program.  If you want to know when you are likely to be above water again on your mortgage, you can use the HSH “Know Your Equity” calculator to get an estimate.

The MBA’s Refinance Index declined by 4.6 percent compared to the previous week, falling to the lowest level since December. The Refinance Index is 24.2 percent lower than the peak of refinancing applications so far this year.

Mortgage rates and refinancing

The extended stretch of low mortgage rates, with 30-year fixed-rate home loans hovering near four percent, has allowed those homeowners with good credit and sufficient home equity to refinance in recent months. The remaining homeowners may not be able to qualify for a home refinance either because of financial difficulties such as job loss or a reduced income; credit problems or simply a loss of value in their homes.

Slowly rising mortgage rates are also having an impact in discouraging homeowners from refinancing since many prefer to refinance only when mortgage rates are at least one percent or more lower than their current mortgage rate.

According to HSH.com, mortgage rates for the week ending March 23 rose to 4.37 percent for a 30-year fixed-rate home loan and to an average of 3.58 percent for a 15-year fixed-rate mortgage. The MBA says that only about five percent of borrowers opt for an adjustable rate mortgage (ARM) but for those borrowers with certainty of their plans to sell their home or pay off their loan within five years, 5/1 ARMs offer potential savings. Mortgage rates on a 5/1 ARM averaged 3.12 percent last week.

Federal Reserve and mortgage rates

While the Federal Reserve does not set mortgage rates, the Fed has vowed to keep both short-term and long-term interest rates of all types low.

“Fed Chairman Bernanke’s comments on Monday about keeping interest rates low despite recent gains in the economy calmed the market,” said Keith Gumbinger, vice president of HSH.com. “There are still plenty of economic troubles which might push interest rates down or cause the Fed to consider expanding its programs to keep interest rates low.”

If you are considering a home refinance, you may want to keep an eye on the economy to help you make the decision about when to lock in your mortgage rate.

The Mortgage Bankers Association (MBA) Weekly Mortgage Applications Survey for the week ending March 16 showed a decline of 7.4 percent for all mortgage applications, but the Refinance Index declined by 9.3 percent compared to the previous week.

“With the rate increase last week, refinances are obviously slowing, and the refinance share at 73% is down to its lowest level since last July,” said Jay Brinkmann, MBA’s Senior Vice President of Research and Education. “With rate/term refinances falling as we go forward, HARP (Home Affordable Refinance Program) will be a bigger percentage of refinances but will be more concentrated in certain states.”

Brinkmann says that HARP refinance applications are about 30 percent of refinances at some of the largest financial institutions, but in some states, such as Florida, Arizona and Nevada, refinance applications rose sharply from January to February.

“HARP clearly is a driving force in those states that saw the most defaults and the biggest drops in home equity,” said Brinkmann.

Mortgage rates and refinancing
According to HSH.com, mortgage rates rose during the week ending March 16 to an average of 4.24 percent for 30-year fixed-rate home loans and to 3.50 percent for a 15-year fixed-rate mortgage. HSH says that while mortgage rates are higher, they are only slightly above the record-low mortgage rates of recent weeks. According to HSH, mortgage rates are rising because of three main influences: an improving economy, higher Treasury yields as a result of investors moving to riskier investments and positive consumer and investor confidence.

Mortgage rates may rise again as the economy improves, but the Federal Reserve has committed to keeping mortgage rates low for at least another year or longer to help the economy recovery.

HSH says rates are unlikely to drop significantly unless more bad economic news arrives, so if you are thinking of refinancing this may be the time to lock in lower refinance rates.

Homeowners who owe more on their mortgage than the value of their home and who meet other qualifications of the HARP program should reach out to lenders, who should be receiving underwriting software from Fannie Mae and Freddie Mac later this month.

According to Michael Fratantoni, vice president of research and economics for the Mortgage Bankers Association (MBA), “HARP volume continued to grow as a share of total refinance volume, reaching roughly 30 percent of refinance activity in the last two weeks.  Typical HARP loans had loan-to-value ratios above 90 percent, indicating that lenders are reaching out to underwater borrowers.”

Once the new software is available, lenders will be able to approve loans for more than 125 percent loan-to-value. Lenders can set their individual guidelines for how much they are willing to refinance above the home value, but they also have the option of using an automatic system instead of an appraisal to establish home value.

According to CoreLogic, 27.8 percent of all homes with a mortgage are either underwater or have less than five percent equity.

Estimate your equity
If you are considering a home refinance and are underwater, you may want to try one of two new mortgage calculators on the HSH.com website. These “KnowEquity” calculators help you determine how long it will take before you are no longer underwater and what it will take to have positive equity by a specific date. You can find out what a combination of mortgage amortization, loan prepayment and price appreciation can do. That calculation can also help you decide if refinancing under HARP or another program is worthwhile.

Refinancing rates

Refinancing applications declined for the fourth consecutive week during the week ending March 9, according to the MBA, decreasing by 4.1 percent. According to HSH.com, mortgage rates dipped to 4.01 percent for a 30-year fixed rate home loan during the week from March 7 to March 13. Five-year adjustable rate mortgage (ARM) rates dropped to a record low of 2.92 percent. An ARM can be a good option for borrowers who intend to sell their home or pay off their mortgage in full before the rate resets.

Contact your lender and other lenders for details about the HARP program.

If you have toyed with the idea of a home refinance but not bothered to apply, some recent federal government program changes may reenergize your interest in refinancing. The Obama administration announced on March 6 a plan to reduce costs for homeowners who currently have an FHA loan and want to refinance into a new FHA loan. FHA upfront mortgage premiums have been reduced to 0.01 percent for a streamlined refinance and annual mortgage premiums have been reduced to 0.55 percent. A homeowner with an FHA loan balance of $175,000 could reduce their payments to $915 per month with a four percent mortgage loan with the new insurance premiums, a savings of almost $100 per month compared to loans under the previous insurance costs. You must have an FHA loan now and be current on your payments to be eligible for a streamline refinance, but an appraisal is not required for loans with the same principal balance as your current mortgage. An FHA streamline refinance may be a good option if you have less-than-perfect credit or little or no home equity.

Refinancing mortgage rates

According to HSH.com, the average mortgage rate for a 30-year fixed-rate home loan during the week ending March 2 was 4.22 percent, down slightly from the previous week. In spite of low mortgage rates, the Mortgage Bankers Association (MBA) Refinance Index showed a decline of 2.0 percent over the previous week in mortgage applications for a mortgage refinance.  The share of mortgage applications declined to 77 percent, the lowest share since December 2011.

If you are considering a refinance but have concerns about your lack of home equity or the cost of refinancing, consult with a lender to see if you are eligible for one of the government-supported mortgage refinance programs.