How homeowners would save this much by refinancing

How homeowners would save this much by refinancing

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.

See more at MoneyWise

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Finance Magazine: How homeowners would save this much by refinancing
How homeowners would save this much by refinancing
Homeowners are still missing out on historically low mortgage rates, a new report reveals.
Finance Magazine
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