With rates below 3%, most mortgages need to be refinanced, study finds


Few people expected mortgage rates to drop this low, and many homeowners have been caught off guard. Thirty-year fixed-rate mortgages now average less than 3% in multiple surveys and offer significant refinance savings.



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Most mortgages need to be refinanced, study finds

While mortgage holders have flocked to obtain new loans with greatly reduced interest rates, many homeowners still have mortgages that are now too expensive.

In fact, a new report from the mortgage company Fannie Mae says most mortgages with outstanding balances must be refinanced. Maybe that includes yours.

If you have a mortgage closer to 4% than 3%, your monthly mortgage payment is probably hundreds of dollars higher than it could be.

Who needs to refinance?



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It is estimated that 60% of homeowners with mortgages can reduce their interest rates by at least half a percentage point by refinancing, says Fannie Mae.

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“The impact of the low-rate environment is that it will block many low-rate households for a long time, reducing their overall housing costs,” says Doug Duncan, chief economist at Fannie Mae.

Here’s an example of how it works: A $ 250,000 30-year 3.5% mortgage has a monthly payment of $ 1,122 and lifetime interest costs of approximately $ 154,000. The same 3% loan, half a point less, has a monthly payment of $ 1,054 and lifetime interest of around $ 129,000.

With the lowest mortgage rate, you would save more than $ 800 a year and approximately $ 25,000 over the life of the loan.

The numbers are even better if you’re among the millions who could make even bigger cuts in your mortgage rates by refinancing.

Some 16.3 million homeowners can reduce at least three-quarters of a point (0.75) of their rates through a refi – like going from 3.9% to 3% – and lower their monthly loan payments by an average of $ 283mortgage data firm Black Knight recently said.

To achieve that kind of savings, a refinance candidate must have a 30-year loan, a credit score of 720 or more, and at least 20% equity in the home, according to Black Knight.

Still haven’t refinanced? You need to catch up



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“Some homeowners are in a position to benefit from a refinance, even if they already refinanced last year,” says Matthew Graham, COO of Mortgage News Daily.

Many have heeded the call to refinance their mortgages and save. Lenders are dealing with more than double the number of refinance loans this year than in 2019.

From January to April 2020, homeowners refinanced more than $ 1.9 billion in mortgages worth $ 576 billion, says CoreLogic, a real estate data company. Those numbers are in excess of the 754 million loans worth approximately $ 203 billion that were refinanced in the first four months of 2019.

Just under a quarter of this year’s refinances have been cash refinances, where homeowners take advantage of the capital they’ve already paid in their homes by borrowing more than their outstanding loan balances.

People use cash withdrawal refinancing to pay for home renovations or meet other financial goals, such as paying off high-interest credit debts.

But there are better options that won’t put your home at risk if circumstances change and you can’t repay the loan. For example, you could take care of your credit card debt by turning it into a low-interest debt consolidation loan.

Do you need to rush to refinance? Yes and no



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Mortgage rates have gone to places they have never been before in large part due to extraordinary steps by the Federal Reserve to try to pull the economy out of its coronavirus recession.

The United States central bank has lowered a key interest rate to near zero and has been buying Treasuries and mortgage-backed securities. Those are home loans pooled into bond-like investments.

Mortgage loan rates are likely to drop further next year, Duncan says, with Fannie Mae.

“The 30-year fixed-rate mortgage loan could have an average rate of just 2.75%. Some pristine, risk-free borrowers might see mortgage rates of 2.5%,” he says.

But Duncan says don’t wait. He tells buyers if they find a loan today that fits their family budget, “then it’s a good time to buy.”

The advice to homeowners is similar: If you see a loan with a substantially lower rate, jump in and start taking advantage of the savings. Compare loan offers from multiple lenders to find your best deal, as rates can vary widely between different lenders.

Be sure to take the same approach when it comes time to renew your homeowners insurance. Go online, get multiple home insurance quotes, and review them side by side to get the right coverage at the right price.

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