Mortgage rates in the United States continue to rise, with the contract rate for a 30-year fixed mortgage increasing by 16 basis points to 6.52% for the week ending 11 October, the highest rate since early August. The steady climb is attributed to persistent inflation and strong job growth, which has led the Federal Reserve to raise interest rates to cool the economy. As borrowing costs rise, refinancing applications have sharply declined.
Shaun Bettman, CEO of Eden Emerald Mortgages, highlighted the link between inflation and mortgage rates. “Persistent high inflation has been the primary driver of rising mortgage rates. As the Federal Reserve raises interest rates to combat inflation, borrowing costs increase, and mortgage rates rise in turn,” Bettman explained. He added that this rise discourages homeowners from refinancing their existing mortgages, especially those who already have lower interest rates.
“When mortgage rates go up, refinancing becomes less attractive because homeowners would face higher monthly payments,” Bettman said. “People typically refinance to reduce costs, and in this environment, that’s much harder to achieve.”
The decision to refinance can be influenced by several factors, such as economic conditions, local housing markets, and state-specific policies. According to Bettman, states with more robust economies, such as Idaho, Colorado, and New Hampshire, tend to see more refinancing activity, as higher incomes and lower unemployment encourage financial confidence. In contrast, rural states like New Mexico often have fewer lending options and less competition among mortgage providers, leading to a reduced interest in refinancing.
A recent study by Eden Emerald Mortgages analysed the states least likely to refinance by examining Google searches related to remortgaging. The study, which reviewed terms like “refinance deals” and “refinance calculator,” compared search data across all 50 states. The results were then compared to population figures, creating a ranking of states with the least interest in refinancing.
The study found that New Mexico residents were the least likely to consider refinancing, with only 369 searches per 100,000 people and an average of 7,810 monthly searches. Mississippi followed, with 371 searches per 100,000 people, while Louisiana ranked third, with 421 searches. Other states in the bottom five included Arkansas and Texas, indicating lower interest in refinancing in these regions.
Explaining the findings, Bettman noted that credit scores and long-term financial goals also play crucial roles in remortgaging decisions. “A higher credit score gives you access to better loan terms and interest rates, making refinancing more feasible. On the other hand, a lower score could result in higher costs or even disqualification,” he said.
For homeowners contemplating refinancing, Bettman advises careful consideration of their long-term financial goals. He suggests looking into options such as switching from adjustable-rate to fixed-rate mortgages or shortening loan terms from 30 to 15 years for quicker repayment.
As mortgage rates continue to rise, homeowners are urged to seek professional guidance from financial advisors or mortgage brokers to navigate the complexities of the current market.
