It might not seem plausible at first – but refinancing a new mortgage could actually save you money. With mortgage rates falling to record lows in 2020, millions of new and recent homeowners could save around $150 per month on average.
It appears that homeowners are beginning to understand this. At the beginning of March 2020, applications for refinancing soared by 79% in comparison to the previous month. While mortgage rates might have rebounded slightly since then, millions of homeowners in the US could still benefit by refinancing today.
When should I refinance?
As a rule of thumb, you might want to consider refinancing if you are able to cut your mortgage rate by 0.75 percent. A recent study by an American mortgage analysis company suggested that some 14.5 million property owners would be perfect candidates for refinancing if mortgage rates were to fall to 3.25 percent or lower. That’s exactly what happened at the start of March 2020.
The ideal candidate
Ideal candidates for refinancing include those who have new mortgages around the 30-year bracket, who have good credit scores (720 or higher), currently own at least 20% equity in their property, are up to date with their loans and could cut their interest rate by the 0.75 percent figure.
How did the opportunity to refinance occur?
It’s worth pointing out that this opportunity for refinancing landed unexpectedly. Mortgage rates fell in February and continued to do so during March due to the spread of COVID-19. As the disease continued to take hold across the world, global markets also felt the effects. The 30-year fixed-rate fell to its lowest since it was first tracked in 1971. As a result, the Federal Reserve made the decision to cut interest rates to help cushion any economic fallout from the outbreak.
In addition to the effects of coronavirus, the oil price war between Saudi Arabia and Russia also rocked markets during March. Surveys that looked at the daily mortgage rates of the largest lenders in the US found that the average rate on a 30-year fixed mortgage fell from 3.42 percent towards the end of February to just 3.16 percent by March 9th, 2020.
This represents a decline of over 0.75 percent in comparison to May 2019 – this means that there are now millions of candidates for refinancing who purchased their homes/refinanced their loans less than a year ago.
How much refinancing could save you
The average refinancing on a mortgage was just over $364,000 according to statistics from the Mortgage Bankers Association. Assuming your mortgage is at or around this average amount, the difference between an interest rate of 4 percent and 3.25 percent works out at $154 in interest – or $1,845 each year, on the assumption that you refinance into another 30-year mortgage instead of opting for a shorter-term loan.
To find out how much you could stand to save from refinancing, you should check your loan paperwork to see what interest rate you are locked into. Now check today’s refinancing rates to see the difference. If the numbers look promising, perhaps it’s time you considered refinancing.