Looking to Refinance? You May Not Get the Lowest Mortgage Rates
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What is the episode about and who is hosting this Money Briefing?
Here's your money briefing for Wednesday, August 19th. I'm Charlie Turner for The Wall Street Journal. Rock-bottom mortgage rates have a lot of homeowners looking to refinance, but many are finding themselves out of luck.
As rates have hit record lows, tons and tons of people have just... been calling up their mortgage lenders and trying to refi. So there's just an overabundance of that business, and there's comparatively less demand for purchase mortgages at the moment.
That's our reporter, Ben Eisen. He'll be here talking about mortgage rates and what to expect from refinancing these days. That's after the break.
Homeowners are rushing to refinance at record low interest rates, but they're quickly finding out that they can't get the lowest rate because mortgage lenders are reserving them for new homebuyers. Our reporter Ben Eisen has been looking into this, and he joins us now.
How are mortgage rates behaving right now for purchases versus refinances?
So, Ben, remind us, where are mortgage rates right now, both for home purchases and for refis?
Mortgage rates have been near record lows for really the last few months, and they've fallen precipitously as the pandemic has unfolded. What's interesting, though, is that rates aren't all the same. There are a lot of things that go into a rate, but increasingly, the rates that are being advertised for purchase mortgages are a lot lower than for refinances. A purchase mortgage has had an advertised rate of just over 3%, 3.14%, according to the rates that are advertised on bankrate.com, personal finance website. For a refinance loan, the advertised rate is actually a lot higher. It is 3.39%. So there really is kind of a quarter of a percentage point difference there between purchase and refi.
That's a pretty big spread. Has it ever been that wide?
So it's really widened out over the last couple of months. And it's definitely the widest it's been in a number of years.
How big is the rate gap between purchase mortgages and refinances?
2018, 2019, early 2020, these two rates basically tracked each other pretty closely is what we found. And then when the pandemic unfolded, you sort of had a divergence start to open in these rates and purchase rates fell a lot quicker than refinance rates. And that's recently widened out even more.
So why are lenders saving their best rates for home buyers and not refis?
So there's a couple of things going on here. The first thing is that purchase mortgages, they've always sort of been something that mortgage lenders have sort of valued a bit more than refis. If you think about a purchase mortgage, it takes a lot more work to get it done, but it can lead to more referrals down the road. It can lead to refis down the road. It's the basis of a solid mortgage lending business.
Why are lenders favoring purchase mortgage rates over refinance rates?
A refi, on the other hand, is really just kind of a function of rates. People come to you to refi when the rate is low enough that it's worth it for them. It's not really quite the same in terms of a relationship business. The other thing that has happened is you've had just a tremendous amount of demand for refis. As rates have hit record lows, tons and tons of people have just been calling up their mortgage lenders and trying to refi. So there's just an overabundance of that business, and there's comparatively less demand for purchase mortgages at the moment. So you see lenders sort of prioritizing those purchase mortgages, and as a result, the rates have slipped a little bit lower.
Have lenders always prioritized home purchases over refis, or is this new?
Well, I think what's new here is that just the tremendous demand that you've seen for the refis, which means that there's just so much demand for refis that really lenders are kind of maxed out. So what you have here is this prioritization is kind of taking place on a more exaggerated scale.
Freddie Mac and Fannie Mae recently put in place a new fee on lenders for most refinancings. Can you talk about this?
What new fee did Fannie Mae and Freddie Mac introduce and how does it affect refis?
What's the fee? Why did they do it? And what it's done to refi rates?
Sure. So this is really what has driven this gap wider between purchase and refi rates, specifically over the last couple of days. What happens is Fannie and Freddie are government-sponsored enterprises and they don't make loans, but they buy them from lenders and they package them up and they sell them to investors and they charge a fee to do that.
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Chapters
7 chapters
1
What is the episode about and who is hosting this Money Briefing?
0:05–1:01
2
How are mortgage rates behaving right now for purchases versus refinances?
1:01–2:05
3
How big is the rate gap between purchase mortgages and refinances?
2:05–2:53
4
Why are lenders favoring purchase mortgage rates over refinance rates?
2:53–4:01
5
What new fee did Fannie Mae and Freddie Mac introduce and how does it affect refis?
4:01–5:16
6
Why did the FHFA, Fannie and Freddie say they enacted the refinance fee?
5:16–6:14
7
How should homeowners decide whether refinancing still makes sense for them?
6:14–7:12
Speakers
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