The Refinance Index, which reports how many homeowners apply for a mortgage refinance each week, dropped by 3.6 percent during the week ending January 27, 2012, according to the Mortgage Bankers Association (MBA). The refinance share decreased slightly, but remains at 80 percent of all mortgage applications.

“The Federal Reserve surprised the market last week by indicating that short-term rates were likely to stay at their current low-levels until the end of 2014.  Longer-term treasury rates dropped in response, and mortgage rates for the week were down slightly as a result,” said Michael Fratantoni, MBA’s vice president of research and economics.  “Although total application volume dropped on an adjusted basis relative to last week, refinance volume remains high, with survey participants reporting that the expanded Home Affordable Refinance Program (HARP) contributed to roughly 10 percent of their refinance activity.”

The average interest rate for a 30-year fixed-rate loan stayed low at 4.28 percent last week, according to HSH.com, with 15-year fixed rate home loans averaging 3.55 percent.

Refinancing and home prices

One obstacle for homeowners to refinancing, even if they have excellent credit and a low debt-to-income ratio, is a lack of home equity. While some homeowners have little or no equity because they bought their property with a low down payment, many who had equity have watched it erode in recent years due to dropping home values.

The Case-Shiller Home Price Index released January 31 showed that home prices declined for the third consecutive month in most areas, by 3.7 percent from November 2010 to November 2011 in the 20 city composite index and by 1.3 percent from October to November 2011.

While the home price index provides a general portrait of the national housing market, home values vary widely by locality. Check with a Realtor and meet with a lender to determine whether your home value is high enough to support a home refinance.

While mortgage applications may have declined because of the slight uptick in mortgage interest rates, the decrease may also have been caused because of the sharp increase (23 percent) in all mortgage applications for the previous week. According to HSH.com, the surge in mortgage applications during the week ending January 13 may have been partly caused by pent-up post-holiday demand since that was the first full week of the new year.

The Refinance Index released by the MBA for the week ending January 20, 2012 shows that applications for a home refinance decreased by 5.2 percent from the previous week. According to HSH.com, average mortgage rates rose slightly last week, up to 4.22 percent for a 30-year fixed-rate home loan and to 3.53 percent for a 15-year fixed-rate mortgage. The average mortgage rate for a 5/1 adjustable rate mortgage (ARM) was 3.04 percent.

Mortgage refinancing options

The MBA reported that in December 2011, 56.6 percent of borrowers who were applying for a mortgage refinance opted for a fixed-rate 30-year home loan 24.3 percent applied for a 15-year fixed-rate loan. Just 5.3 percent of applications were for ARMs. Low interest rates have made shorter term loan payments more affordable than in the past and many homeowners have switched from a 30-year home loan to a 15-year mortgage to eliminate mortgage debt faster.

Refinance rates and the Federal Reserve

The Federal Reserve announced on January 25 that it is likely to keep the federal funds rate near zero through late 2014. In addition, the Fed plans to continue its “Operation Twist” policy, designed to keep long-term interest rates such as mortgage rates low.

Mortgage rates are expected to remain close to record lows in 2012, but some loan fees are rising which could make refinancing more expensive for those who wait.

The MBA’s Refinance Index reached the highest level since August 8, 2011 and the refinance share of mortgage applications rose to 82.2 percent.

“Interest rates dropped last week due to continuing anxieties regarding the fragile economic situation in Europe,” said Michael Fratantoni, MBA’s vice president of research and economics.  “With mortgage rates reaching new lows, refinance volume jumped and MBA’s refinance index reached its highest level in the last six months.”

According to HSH.com, the average rate for a 30-year fixed-rate home loan was 4.19 percent. Mortgage rates for all loan types reached record lows during the week ending January 13.

HSH.com anticipates that interest rates will rise by about an eighth percentage point or more in the next few weeks or that fees will rise for mortgage borrowers due to the decision by Congress to raise the cost of the mortgage guarantee fees imposed by Fannie Mae and Freddie Mac.

Refinancing and ARM analysis

Adjustable rate mortgages (ARMs) also reached record low mortgage rates last week and a recent analysis by Freddie Mac of ARM activity in 2012 shows that initial-period rates on ARMs were at the lowest levels recorded in the 28-year history of the ARM pricing survey. In early January 2012, the interest rate savings for the popular 5/1 hybrid ARM compared to the 30-year fixed-rate mortgage amounted to about 1 percentage point, about the same as during January 2011, according to Freddie Mac.

Frank Nothaft, vice president and chief economist of Freddie Mac, said, “Homebuyers have shied away from ARMs, particularly traditional 1-year ARMs, because they are wary of the risk and uncertainty.  The potential for much larger payments if future shorter-term interest rates are significantly higher and the high delinquency rates that borrowers have experienced with ARMs in recent years have led consumers to prefer fixed-rate loans over ARMs. In addition, fixed-rate loans currently are at near historic lows, and initial ARM rates are only slightly lower than fixed-rate loans.”

If you are considering refinancing and know you will sell your home or pay off the loan balance during the initial fixed-period of an ARM, this could be a loan product worth considering.

The Mortgage Bankers Association (MBA) reported that for the week ending January 6, 2012, the Refinance Index, which looks at how many applications are filed for refinancing a mortgage, rose by 3.3 percent when compared to the previous week. Interestingly, the Purchase Index showed an increase of 8.1 percent over the previous week, a hopeful indication of movement in the housing market.

Mortgage rates and refinancing

According to HSH.com, the average mortgage rate for a 30-year fixed-rate home loan was 4.26 percent last week, a slight decrease from the previous week. Mortgage rates for a 15-year home loan dipped to 3.56 percent and rates for a 5/1 adjustable rate mortgage dropped to 3.09 percent.

HSH.com says that mortgage rates are starting 2012 at approximately the lowest rates in sixty years. In addition, HSH.com says that “it would take monumental economic change for better or worse to move them in either direction very much.”

Refinancing changes in 2012

While mortgage rates are anticipated to stay fairly low all year, HSH.com points out that “Congress is raising the cost of borrowing somewhat by using mortgage guarantee fees as a means to have money to pay for payroll tax rollbacks. Increases in “G-fees” (as they are called) will start being included in rates or fees starting in April.”

If you are considering refinancing a home, you may want to begin the application process soon so as to go to settlement before any new fees kick in or mortgage rates rise.

The Weekly Mortgage Applications Survey for the weeks ending December 23 and December 30 showed a decline of 1.9 percent in refinancing applications compared to the week ending December 16.  However, the share of applications for mortgage refinancing rose to 81.9 percent during that same time period, reflecting a slowdown in home purchase applications.

“Mortgage application activity declined over the last two weeks, even after adjusting for the typical seasonal decline in activity.  Refinance applications continue to account for the vast majority of total application volume, with the refinance share reaching its highest level in 2011,” said Michael Fratantoni, MBA’s vice president of research and economics.

Mortgage rates and refinancing

Low mortgage rates are expected to continue at least for the next few weeks of 2012.

According to HSH.com, “We begin 2012 with fixed interest rates almost a full percentage point below where we began 2011, at levels which not only promote affordability and refinance opportunities, but also at ones which are starting to warm up the housing market.”

The average mortgage rate for a 30-year fixed-rate loan was 4.29 percent for the week ending December 30, according to HSH.com, while the average rate for a 15-year fixed-rate loan was 3.60 percent.

Fratantoni anticipates that mortgage rates and the number of mortgage applications will likely stay the same into February.

“As part of legislation to extend the payroll tax holiday, guarantee fees for loans purchased by the GSEs and mortgage insurance premiums for FHA loans will eventually increase,” said Fratantoni. “Given the announced implementation of this change, we do not expect to see an impact on mortgage rates and application activity until at least February.”

 If you are considering refinancing a home, it may be a good idea to contact a lender now before loan fees or mortgage rates rise.

Most Americans would prefer to hear that the economy is improving and strengthening, but a positive side effect of weak economic reports is often low mortgage rates. If you are a homeowner with some equity, decent credit and a solid job, a home refinance may be part of your New Year’s plans. If so, you may want to move quickly in case the economy takes an unexpectedly positive turn and mortgage rates rise. So far, though, economists think 2012 will look a lot like 2011.

“It’s important to recognize that we’re ending 2011 on a stronger note than we’ve seen throughout the year. Unfortunately, however, our 2012 outlook is not as rosy as our forecast for the fourth quarter of 2011,” said Fannie Mae Chief Economist Doug Duncan. “Despite recent near-term improvement, the housing market will likely remain subdued next year – a reflection of the winter season, an expected slowdown in economic activity, and a potential increase in distressed sales. Moreover, we expect that the country’s fiscal problems will be hotly debated over the coming year and will weigh on the market. The very large fiscal impact of pending tax and legislation decisions will likely tamp down overall growth expectations for 2012.”

Mortgage rate forecast

According to HSH.com, mortgage rates are likely to stay low for the next few months.

“For the next nine weeks, we think that the overall average for 30-year fixed-rate mortgages (as measured by HSH’s FRMI) will run in a narrower-than-last-time range of 4.20% to 4.50%, while the overall average for Hybrid 5/1 ARM should find bookends of 2.95% to 3.25%. For conforming, 30-year fixed rates, we expect boundaries of 4% to perhaps 4.30% to take us through mid-February,” according to the HSH Two-Month Forecast for Mortgage Rates.

If you are thinking of refinancing, it may be time to test the waters with a mortgage lender.

The Mortgage Bankers Association (MBA) Weekly Mortgage Applications Survey for the week ending December 16, 2011 showed a decrease of 1.6 percent for refinance applications over the previous week. Overall, mortgage applications declined by 2.6 percent.

“Continued anxiety surrounding the fragile economic situation in Europe led interest rates lower last week. However, refinance applications fell slightly, and purchase applications dropped further as we head into the end of the year,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “Remarkably low rates are not enough, as many homeowners continue to hold back due to lack of equity in their properties, poor credit and a weak job market.”

The refinance share of all mortgage applications increased to a high for the year at 80.7 percent. Those who apply for a home refinance are overwhelmingly choosing a fixed-rate home loan, with just 5.1 percent of applicants choosing an adjustable rate mortgage (ARM).

Mortgage refinance rates

According to HSH, the average rate for a 30-year fixed-rate home loan was 4.25 percent last week, while a 15-year fixed-rate home loan averaged 3.54 percent. The average rate for a 5/1 ARM was 3.06 percent.

Many homeowners who have not refinanced recently have a home loan with a rate above five percent and could save significantly if they qualify for a new mortgage. For example, a $250,000 30-year fixed-rate home loan costs $1459 per month at 5.75 percent. The payments on that loan would drop to $1230 if refinanced at 4.25 percent.

Consult with a mortgage lender even if you are uncertain about your home value or your ability to qualify for a new home loan, since programs are available to approve mortgages even for borrowers with low equity or less-than-perfect credit.

The MBA’s Weekly Mortgage Applications Survey showed that refinance applications increased by 9.3 percent during the week ending December 9, 2011 compared to the previous week. This represents the highest level of home refinance applications since November 4, 2011. The refinance share of all mortgage applications rose to 79.7 percent.

According to HSH.com, the average rate for a 30-year fixed-rate home loan was 4.31 percent, while mortgage rates for a 15-year home loan dipped to 3.62 percent. Rates on a 5/1 adjustable rate mortgage dropped to 3.09 percent.

Mortgage refinance rates in 2012

Economists are looking back at the volatile U.S. economy of 2011 and developing forecasts for 2012. Most economists assume mortgage rates will stay low, at least in the beginning of the year.

“Thirty-year fixed-rate conforming mortgages have hovered around 4.0 percent (or lower) during the fourth quarter to-date thanks in large part to the Federal Reserve’s Maturity Extension

Program and its stated intent to push and keep long-term rates low,” says Frank E. Nothaft, chief economist of Freddie Mac. “The program (a.k.a. ‘Operation Twist’ by the popular press) is expected to last until mid-2012. This should keep fixed-rates for 15- through 30-year product relatively low during the first half of the year, with rates edging up during the second half.”

If you are considering the potential financial benefits of refinancing into a shorter term loan or a new 30-year fixed-rate home loan, you may want to take steps to apply now or early in 2012 for a refinance in case mortgage rates rise later in the year.

The Mortgage Bankers Association (MBA) reported a sharp increase in the number of applications for mortgage refinancing during the week ending December 2, up 15.3 percent over the previous week, according to the MBA’s Weekly Mortgage Applications Survey.  The refinance share of all applications increased to 76 percent of all mortgage applications.  

“Coming out of the Thanksgiving holiday, applications increased significantly as mortgage rates dropped to their lowest levels in about two months,” said Michael Fratantoni, MBA’s vice president of research and economics. “In particular, refinance applications increased sharply, with some lenders seeing refinance volume double. Despite this surge, aggregate refinance activity is still below levels reported two weeks ago. Some lenders indicated they are beginning to see an increase in HARP [the government’s Home Affordable Refinance Program] loans, but that increase is still a small portion of the move this week.”

Refinance options

The MBA reports that 52.9 percent of the applications for a mortgage refinance were for a 30-year, fixed-rate home loan, while 26.2 percent were for a 15-year fixed-rate loan. Just 5.8 percent of the applications were for an adjustable rate mortgage.

Refinancing and home values
One important element of refinancing is your home’s value. According to CoreLogic, a provider of mortgage data, home prices declined 1.3 percent across the U.S. in October compared with September, the third consecutive month of price declines. Not all markets are declining, however, and home prices fluctuate even within a small community. Consulting with your current lender and getting an estimate of your home value from a Realtor can help you decide if you are ready to refinance. Borrowers who are underwater may still have an option to refinance under the HARP program, so be sure to ask a mortgage lender about refinancing even if you know you have little or no home equity.

Underwater homeowners have been unable to refinance into lower mortgage rates, since most lenders require at least some home equity in order to approve a new loan. Mortgage rates remained extremely low for most of November, according to HSH.com, but homeowners without equity have been unable to take advantage of these low mortgage rates. Applications for a home refinance declined by 15.3 percent during the week ending November 25 compared to the previous week, according to the Mortgage Bankers Association (MBA), even when adjusted for the Thanksgiving holiday.

CoreLogic says that 10.7 million homeowners were in negative equity during the third quarter of 2011 and an additional 2.4 million borrowers had less than five percent equity, which the company refers to as “near-negative equity”.

Refinancing and negative equity

According to CoreLogic, “There are nearly 22 million borrowers, or 45 percent of all borrowers, who have mortgages with an 80 percent or more loan-to-value (LTV) ratio, and 69 percent of those mortgages have above-market interest rates of 5 percent or more. Conversely, only 54 percent of borrowers who have less than 80 percent LTV have above-market interest rates. While above-market interest rates make refinancing at today’s historically low rates a cost-effective step for qualified homeowners, it can be more difficult for borrowers with above-average LTV ratios to qualify for refinancing.”

If you have low or negative equity and have been keeping current with your mortgage payments, there may be an option for you to refinance with the expanded “Home Affordable Refinance Program” or HARP. This program is designed to allow homeowners to refinance into a lower mortgage rate even if they lack enough equity for conventional refinance programs. Check with your lender to see if you qualify for a HARP refinance.