With mortgage rates on the rise again, waiting to refinance can be costly
Still hesitating to refinance your home loan? You are one of the millions of people who are missing out on a potentially major opportunity to cut costs.
If you’re not convinced, consider this statistic: Homeowners who refinanced their 30-year fixed-rate mortgages in 2020 cut their interest rate by a full percentage point and saved, on average, more than $ 2,800 per year, a new report shows.
Another point to ponder: As the economy recovers, rates are on the rise again – 30-year home loans this week have risen to 3% on average, according to a popular poll. While mortgage rates are still incredibly low, they may not stay that way for long.
What low rates mean for your loan
Despite recent mortgage rate cuts, many homeowners who can benefit have still not joined the refi rage.
Some 13 million US mortgage creditors could save large sums of money by refinancing, estimated by Mortgage Technology and data provider Black Knight.
In total, refi candidates could save $ 3.68 billion monthly through refinancing, which equates to an average savings per borrower of $ 283 per month, according to Black Knight. In addition, 1.5 million of these homeowners could save $ 500 or more each month by taking out new loans.
Time can be counted on these offers. Although average rates on 30-year fixed-rate mortgages recently slipped into “under 2” for the first time in months, this week the typical rate climbed back to 3%, according to the long-standing survey by Freddie Mac Mortgage Company. shown Thursday.
According to a separate Mortgage Bankers Association study, the 30-year average fixed mortgage rate jumped to 3.15% at the end of last week, from 3.11% a week earlier.
Certainly, rates remain low compared to very recent history.
“Rates were still below the levels reported in late March and early April, giving borrowers an additional opportunity to refinance,” Joel Kan, chief forecaster of the MBA, said Wednesday.
But as the economy improves – now that more than 124 million Americans are fully immunized and people are stepping out again – mortgage rates are expected to rise slowly but steadily.
Should You Refinance Now?
Deciding whether or not to refinance your current mortgage isn’t rocket science, but it takes a little more math than just comparing today’s mortgage rates (they obviously tend to fluctuate, depending on the source) with the one you got stuck when you bought your house.
Homeowners should consider a few key points:
The rate on their existing loan is the typical rate offered in the market.
How much equity they have in their home.
How long they plan to live there and how much they are likely to pay in closing costs. If you don’t plan to stay in your home for at least a few years, you may not get back what you spend on various refinancing fees.
Assuming an average of $ 5,000 in closing costs, Freddie Mac estimates that 24 million borrowers would recover closing costs within five years of refinancing. And during that time, borrowers could save on average about $ 12,000 in mortgage payments.
The government-sponsored mortgage giant, which has looked at 30-year fixed-rate loans over the past decades, found that about 4.7 million mortgages created between 2009 and 2019 had rates around 1 percentage point above current market rates.
And more than 450,000 loans taken out from 2000 to 2008 have an average mortgage rate of 6.17%. That’s over 3 percentage points above the latest Freddie Mac rate update.
Black Knight says those who could benefit the most from refinancing are 30-year mortgage holders who can reduce their current mortgage rate by at least three-quarters of a percentage point (0.75). They should also have accumulated at least 20% equity in their home and have a minimum credit score of 720.
If you haven’t seen your score for a while, it’s easy to get a free overview of your credit score.
Ready to dive into a refi?
Loan refinancing applications last week were up 4% from the week before and accounted for 63.3% of all mortgage demand, according to mortgage bankers.
If you are ready to join the current refi boomlet, be sure to check the mortgage rates of several lenders to find the best deal available in your area.
While you do your comparison shopping, take a look at the latest home insurance rates. If your policy is due for renewal soon, get multiple quotes to see if another company offers the same coverage you have now, but at a lower rate.
And if now is not the time to refi, why not try and earn some extra cash to help you with your mortgage payments, or your housing costs in general? A popular app helps you get returns on the boiling stock market in a pretty simple way: by invest your “spare currency” daily shopping.