There's been a refinancing frenzy kicking up this spring, and Wall Street Journal contributor Anya Martin says, "the bigger the loan, the greater the fall." Refinance applications hit their highest levels for 2016 in the week ending on February 12, with the average loan amount coming out to $316,000. (subscription required.)
Low interest rates have spurred homeowners to refinance their mortgages, and borrowers with higher balances are seeing their monthly payments decline the most. Martin says that for higher loan amounts, even a small reduction in the interest rate can add up to substantial savings to a monthly payment. Even just a quarter-point rate drop on a $760,000 loan amount can save a borrower as much as $100 on monthly payments, says Kasey J. Marty, executive vice president of Chicago-based Guaranteed Rate.
“The economy has been getting better, so some fortunes have improved and bonuses are higher,” says Bob Walters,chief economist at Quicken Loans. Thus, some people have better credit scores and a lower debt-to-income ratio—lenders typically look for 43% or less to meet federal guidelines—than a year ago, Mr. Walters says.
No one can really predict at this point how long mortgage rates will stay low, but Keith Gumbinger, vice president at HSH.com, says that borrowers are unlikely to save more by waiting. The Fed is expected to raise short-term rates at some point this year, which is likely to spur lenders to follow suit on mortgage rates, so anyone postponing a refinance should watch rates closely, he adds.