Mortgage rates are holding steady near historic lows, and homeowners who haven’t refinanced could be…
Mortgage rates are holding steady near historic lows, and homeowners who haven’t refinanced could be tossing thousands of dollars out the window, online real estate company Zillow reports.
The monthly mortgage payment on the typical U.S. home, worth $256,663 in August, would be $951 before taxes or insurance with a 3.75% mortgage rate, near where rates were a year ago.
But with a 3.02% rate, that monthly payment drops to $868, which adds up to nearly $1,000 per year in savings.
Over the lifetime of a 30-year loan on that same home, the difference between a 3.75% rate and a 3.02% rate comes out to $29,880.
As the coronavirus pandemic has impacted the U.S. economy, one effect has been persistently low interest rates.
The Federal Reserve lowered interest rates to near 0% in March to help bolster the national economy and shows no sign of raising them.
As a result, mortgage rates, which generally follow bond yields, have lingered near historic lows.
Refinancing does come with additional fees that can range from 2% to 6% of the loan’s principal, so homeowners who are planning to move within the next couple years may not save enough on a monthly basis to offset those fees.
Since mortgage payments are based on the price of the home loan, homeowners in pricier markets could see savings of hundreds of dollars each month by refinancing to a lower mortgage rate.
In the San Francisco and San Jose metros, where the typical home is worth more than $1 million, the monthly savings from a 3.02% rate instead of a 3.75% rate is more than $350.
Homeowners with smaller loans may not benefit as much from the current low rates unless their current rate is significantly higher.
For example, in Memphis, Tenn. and Oklahoma City, the difference in monthly mortgage payments on the typical home with a 3.75% mortgage rate and 3.02% mortgage rate is only $53. Homeowners who are interested in their potential savings from refinancing their mortgage can talk to their lender or use Zillow’s refinance calculator to see what they could save.
Homeowners who are refinancing their mortgages currently make up about 63% of mortgage activity, according to the Mortgage Bankers Association. Refinancing soon could save borrowers more money than if they wait to refinance.
Beginning in December, Fannie Mae and Freddie Mac are planning to charge an “adverse market fee” on most refinanced mortgages they purchase, which the Mortgage Bankers Association estimates will cost about $1,400 on the typical loan.
Home buyers are currently facing low inventory and climbing prices. As low interest rates keep their monthly payments more affordable, they may be able to stretch their dollar further, giving them more options.