Second Chance Refinance: Today’s Low Mortgage Rates Offer Hope for Previously Rejected Applicants

Photo caption: For the fourth straight week, mortgage rates remained below 3%. Getty Images
For the fourth straight week, mortgage rates remained below 3%.

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Mortgage rates have remained below 3% for a month now.

Last week, the average 30-year fixed mortgage rate slid down by 0.02% to 2.94%, according to Freddie Mac. We’ve seen only minor weekly shifts in mortgage rates this month, which is good news because current mortgage and refinance rates are extremely low.

Right now, it doesn’t look like rates are poised for a big move in either direction. “What really may end up happening is a whole lot of nothing over the next couple months,” says Les Parker, managing director with the Jacksonville, FL based Transformational Mortgage Solutions. The reason for this is counterbalancing factors. Recent reports show increased inflation, which would normally push rates higher. But the Federal Reserve believes this is only temporary and wants to see low rates for the foreseeable future.

As the economy begins to reopen and many who lost their jobs are able to return to work, today’s low rates provide an opportunity for homeowners who missed out on the refinancing frenzy of the past year. “If you are in the same industry … and you were out of work for some period of time, especially with the pandemic, the lenders tend to … be a lot more sympathetic,” says Jeff Lazerson, president of the Southern California-based Mortgage Grader.

Most lenders were overwhelmed last year as record low rates caused a surge in demand for refinancing and new home loans. In response, they became more selective and tightened their lending standards. But now, those same lenders are competing for business. 

If you weren’t able to qualify for a loan because you had a unique or complicated situation, such as business income or credit issues, “all those people should be running back to the lenders now because chances are those same lenders will probably approve them today even though they told them no last year,” Lazerson says.

This spells good news for those who were locked out of refinancing their mortgage last year and are still looking to take advantage of low rates to save.

How to Decide When to Refinance to a Lower Rate

Choosing whether to refinance their mortgage is all about saving money. 

But it’s only worth it if you can get a rate that’s significantly better than what you currently have. “I think people should be improving their interest rate by 75 to 100 basis points [0.75% to 1%] for it to make economic sense,” Parker says. But being able to lock in a lower interest rate is only the first step to deciding whether it makes sense to refinance — you have to factor in closing costs as well.

Even if you use a no-closing-cost refinance loan so you don’t pay for the fees out of pocket, you’re still paying for them, usually by having them adding to your loan balance. Depending on how long you end up keeping the loan, those upfront costs can outweigh your savings. So you need to do the math first.

So before you sign the dotted line, make sure the lower rate and fees are worth it.