COVID-19 has helped bring about the lowest mortgage rates ever – but the era of ultra-low interest rates may quickly be coming to an end.
As the Federal Reserve prepares to raise interest rates to fight the worst inflation in decades, 30-year mortgage rates soared to the highest level since late March 2020, in the early days of the pandemic, according to a popular survey.
The increase in interest rates has closed the door to refinancing for many homeowners – but new research shows that millions still have a chance to reduce their monthly payments and lifetime interest costs by taking out a new loan.
Typical refinancing savings: approximately $300 per month
Rates for 30-year fixed-rate mortgages are now averaging 3.45% — up from an all-time low of 2.65% reached just over a year ago, in a long-term survey by mortgage giant Freddie Mac.
But even with interest rates at their current high levels, 7.1 million homeowners in the United States are still in the right place to refinance and could significantly impact borrowing costs, mortgage data and technology firm Black Knight told MoneyWise.
Together, today’s refinancing candidates can save approximately $2 billion per month via refinancing – which averages savings per borrower. $273 per month.
That’s not all – Black Knight says 1.3 million of these homeowners can see monthly savings of at least $400 via refinancing. And more than half of the group will save more than $760 a month, on average, or at least $9,120 a year.
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How do you know if you should reference
When rates were too low and the potential savings was huge, many homeowners apparently decided to procrastinate rather than refinance. A study by Zillow found that 78% had never traded their loans during the first full year of the pandemic, which ended in April of last year.
Think it’s too late to ride a country train? The Black Knight says you are a good candidate if:
You have a 30-year mortgage with an interest rate that you can reduce by at least three-quarters of one percentage point through refinancing—such as going from 4% to 3.25% or better. You may meet these criteria if your current mortgage is from mid-2019, when your 30-year fixed mortgage rates were above 4%.
You have a good to exceptional credit score of at least 720. If you haven’t researched in a while, today it’s easy to peek at your credit score for free.
You have at least 20% equity in your home, which means you have paid 20% or more of the home’s current market value.
Why refinancing companies need to move quickly
Homeowners who are still able to refinance and reap the savings may not have much time to achieve a desirable rate.
Many forecasters expect mortgage rates to continue rising this year as the economy improves and the Federal Reserve starts raising interest rates again, to control inflation. Officials have indicated that the first rate hike could come in March — two years after the Federal Reserve cut rates to nearly zero.
If you’re on the fence about refinancing and are considering making the leap, check rates from several lenders to find the best deal available for your area and for someone with your credit profile.
You may find that you are an expert in comparison shopping – which can also help you save on homeowners insurance. When it’s time to renew your policy, get multiple quotes to see if another insurance company offers the same coverage you currently have, but at a lower rate.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.