By Doug Whiteman,
MoneyWise
A rare positive thing you can say about this tumultuous year is that 2020's
financial chaos has given borrowers the lowest mortgage rates in history.
All of the record lows have provided homeowners with opportunities to
refinance their mortgages and mow down their monthly payments and lifetime
interest costs.
Rates have fallen so deeply that nearly 19 million mortgage holders are now
in a good position to refi and save a sizable amount of money, according to
new research.
How much money can you save?
Rates on 30-year fixed-rate mortgages are currently averaging just 2.84%
according to the long-running survey from mortgage company Freddie Mac.
That's down almost 1 full percentage point from a year ago.
With rates so low, some 18.5 million U.S. homeowners are in the sweet spot
to refinance, the mortgage data firm Black Knight reported earlier this
month. That's way up from the 10.4 million mortgage holders who had an
incentive to refi in November 2019.
Together, today's refinance candidates could save $5.6 billion monthly by
refinancing — which works out to average savings per borrower of $304 a
month.
You think that's good? Black Knight says 2.5 million of those homeowners
could save $500 or more every month through a refinance. The firm notes that
its estimates factor in "the millions of homeowners who have already
refinanced this year."
Who ought to be refinancing?
The final numbers for July, August and September are likely to show
refinancing hit a record during the third quarter of 2020, Black Knight
says. Earlier research indicated that Americans this year have been eagerly
refinancing at more than triple the rate of a year ago.
Want to hop on board the refi train? You're considered a good candidate if:
- You've got a 30-year mortgage with an interest rate you could reduce by at three quarters of 1 percentage point through a refinance — like, go from 3.75% down to 3% or better. You might meet this criteria if your current mortgage is only a matter of months old, because 30-year fixed-rate mortgages were averaging 3.72% at the start of 2020.
- You have a good-to-exceptional credit score of at least 720. If you haven't looked at your score in a while, you can easily get a peek at it for free.
- You have at least 20% equity in your home, which means you've paid in 20% or more of the home's current market value.
Why refinancers need to move fast
Homeowners who could refinance and reap the savings may not have much time
to waste.
Some lenders have been raising their refi interest rates this fall to pass
along a new 0.5% refinance fee being imposed by Freddie Mac and Fannie Mae,
the government-controlled mortgage giants that buy most U.S. home loans from
lenders and bundle them into investments.
In mid-August, Fannie and Freddie announced the fee would take effect Sept.
1 — and mortgage rates quickly soared. Within weeks, a federal regulator
delayed the new charge until Dec. 1, and rates came back down.
Now, the new date is just a few weeks away. So, if you want to get one of
today's record-low mortgage rates locked while you have a chance, start
shopping around ASAP. Check rates from several lenders to find the best deal
available for your area and your credit profile.
You may discover you're an ace at comparison shopping — which is a handy
talent that also can help you save on your homeowners insurance. When your
policy comes up for renewal, get multiple rate quotes to see if another
insurance company offers the same coverage you currently have, though at a
lower price.
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MoneyWise
