Is now a good time to refinance your mortgage? If you had asked that question in October the answer would have probably been “absolutely not.” Mortgage rates were around 8% at the time.
But what a difference two months makes. Rates have drifted lower over the last couple of weeks. After the Federal Reserve declined to raise rates at its December meeting and signaled rate cuts next year, they moved even lower.
Even before the Fed action, current homeowners with higher mortgage rates were racing to refinance, to shave a little off their monthly house payment. The Mortgage Bankers Association (MBA) reports the Market Composite Index, a measure of mortgage loan application volume, increased 7.4% this week from one week earlier.
On an unadjusted basis, the Index increased by 6% compared with the previous week. The Refinance Index increased 19% from the previous week and was 27% higher than the same week one year ago.
The refinance share of mortgage activity increased to 39.2% of total applications from 34.7% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.3 percent of total applications.
Things should get even better next year
MBA Chief Economist Mike Fratantoni said the Fed’s pivot at the December meeting should make it even more advantageous to refinance.
“Additional rate hikes no longer appear to be part of the conversation,” he said. “It is all about the pace of cuts from here. This is good news for the housing and mortgage markets. We expect that this path for monetary policy should support further declines in mortgage rates, just in time for the spring housing market. We are forecasting modest growth in new and existing home sales in 2024, supporting growth in purchase originations, following an extraordinarily slow 2023.”
Mortgage rates are heavily influenced by the yield on the Treasury’s 10-year bond. That yield dropped below 4% this week for the first time since August.
DoubleLine Capital CEO Jeffrey Gundlach said the news should get even better for refinancing homeowners and those hoping to buy a home. After the Fed decision, Gundlach predicted the influential 10-year Treasury yield will to the 3% range next year.