Should You Refinance? Mortgage Rates Slide Below 3%

22 Jul

As mortgage rates slide to their lowest levels in years, many experts are recommending that homeowners consider refinancing their homes. The thirty-year fixed-rate mortgage is now averaging less than 3 percent in many areas, which could offer major savings to homeowners carrying higher interest rates.

A new report from Fannie Mae, says the majority of mortgage should be refinanced. They recommend that if you have a mortgage interest rate that’s closer to 4% than 3%, your mortgage payment is probably hundreds of dollars higher than it could be if you refinanced right now. 

Who Should Refinance?

According to the Fannie Mae report, roughly 60 percent of homeowners with mortgages can shave at least one-half of one percentage point by refinancing. 

“The impact of the low rate environment is that it will lock in many households with low rates for a long time lowering their overall housing costs,” said Doug Duncan, chief economist at Fannie Mae, in a recent Yahoo News article.

As an example: If you are carrying a 30-year, $250,000 mortgage at 3.5% that should result in a monthly payment of roughly $1,122 and lifetime of interest costs that come in at $154,000. The same loan with an interest rate of 3% which is a half-point lower drops the monthly payment to $1,054 and the lifetime interest sinks to $129,000.

This results in a savings of over $800 a year and $25,000 in interest charges over the life of the loan. If your loan or interest rate is even higher the savings will be bigger. 

The mortgage data firm Black Knight recently released data that shows roughly 16.3 million homeowners could shave at least three-quarters of a point (0.75) off their rates if they refinanced their mortgage. Their numbers suggest that most of those homeowners would save at least $283 a month. In order to hit that savings, the homeowner should currently have a 30-year mortgage, a credit score of 720 and up with at least 20 percent equity in their house. 

If you decide to refinance, you will not be alone. Industry data shows that lenders are dealing with more than double the number of refinance loans this year as they did in 2019.

In January through April of this year, homeowners refinanced over 1.9 billion mortgages according to CoreLogic. 

It Could Get Even Better

Due to the Fed’s response to the coronavirus it is possible that mortgage rates will drop even further. 

Rates on home loans are likely to go even lower next year, says Duncan, with Fannie Mae in the Yahoo News article. “The 30-year fixed rate mortgage loan could see a rate, on average, of as low as 2.75%. Some pristine, no-risk borrowers could see mortgage rates at 2.5%,” he said in the article.

However, don’t wait, hoping to get the lowest rate possible rarely works. If you can find a rate that works for your budget and lowers your current payment, now is the time to grab it. And as always, is here to help you shop multiple home insurance rate quotes at ease. Just give us a call at 855-980-6963 or click here to get free home insurance quotes for your new mortgage loan.

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