Why a mortgage refi could be your best gift this holiday season

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Here’s a parody based on the Christmas standard “Have Yourself a Merry Little Christmas:” “Give yourself a brand new mortgage refi. Let your rate be low. From now on, your savings will begin to grow.”

Traditionally, the holiday season is a time when the housing purchase market slows down. That often means lenders have extra capacity to process refinance applications, which can lead to a faster timeline to closing. Mortgage rates may trend even lower, too, as mortgage companies seek to attract customers to keep all those new employees they hired to process applications busy.

While almost nothing about 2020 is normal, this winter may still be a great time to refinance your mortgage if you haven’t done so recently. Interest rates continue to hover near all-time lows, so you stand to give yourself the gift of savings if you act soon.

“Homeowners can take advantage of the low rate environment by refinancing their mortgage, generating hundreds of dollars of savings each month and tens of thousands of dollars in savings over the life of the loan,” says Bankrate chief financial analyst Greg McBride.

Here’s what to know about the state of the mortgage industry if you’re thinking about applying for a new loan.

Jolly good savings in store for refinancers

Bankrate has written a lot in the last few months about how historically low interest rates have driven a mortgage refinance boom, saving many borrowers significant sums as a result.

Even so, we’ve reported nearly 20 million current qualified mortgage holders have passed on the opportunity to refinance, potentially leaving cash on the table.

“It is still a good time to refinance,” said Joel Kan, associate vice president of economic and industry forecasting at the Mortgage Bankers Association. He said that for most borrowers, now is a great time to shop around and see if you can get a rate that will save you enough money to justify the upfront costs of a refinance.

“It’s less of waiting or searching for the bottom in terms of the lowest ever rate. This is more of: let’s find the best rate that works for us,” Kan said.

Each borrower’s situation is different, so it’s important to figure out how much you’ll need to save in order to make refinancing worth it for you. That can be affected by how long it will take you to break even on the upfront costs, too.

The housing market is still hot

One key difference in the mortgage industry this year is that the normal winter slowdown hasn’t happened as decisively on the purchase side.

“Things are running pretty strong right now still,” Kan said. “Both purchase and refis are running at an elevated pace when you consider 2020 relative to 2019,” he added. “On the purchase side, typical seasonal patterns have been distorted in a sense.”

Compared to other years, that could mean longer processing times for refinances this winter, but the good news is lenders have largely cleared the backlog from the early days of the refinance boom.

“Capacity constraints were a significant challenge before and that has eased somewhat,” Kan said. “Whether it’s the staffing or the increased efficiency we gained from six to nine months of this experience, the turn times and the customer experience side of things are improving.”

He noted that many lenders went on significant hiring binges earlier in the year to cope with a flood of new loan applications.

Rates may only stay this low for a little longer

Perhaps the best reason to refinance this winter is that the long spate of record-low interest rates may be coming to an end soon, though rates are expected to stay relatively low overall.

Kan said MBA expects interest rates to increase in 2021, with more pronounced upticks in the later part of the year.

While even those higher rates will be low by historical standards, if your main goal with a refinance is getting the lowest possible rate, it’s best to act soon.

“It’s not a big increase, we’re not talking about a full percentage point,” Kan said.

That’s in line with a recent CoreLogic forecast, which calls for rates to remain around 3 percent throughout 2021.

Bottom line

A number of factors are converging this winter that could make it a good time for many homeowners to refinance their mortgages.

Rates should continue to hold near record lows at least for a few more months, and many lenders have upped their application processing capabilities, which should ease the process and accelerate the timeline for many loans.

If you’re thinking of refinancing, make sure to shop around to find the best deal. Calculate all the costs associated with any quotes you receive, and check that you’ll be saving enough and breaking even on the upfront costs soon enough to make it worth the fees and hassle.

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Written by
Zach Wichter
Mortgage reporter
Zach Wichter is a mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy.