Even after a flood of mortgage refinancings in recent months, many millions of American homeowners can still benefit from a refi. Mortgage data firm Black Knight estimates that a record 19.4 million homeowners could save money by swapping out mortgages.
That represents 43 percent of all homeowners with 30-year loans. And the figure includes only homeowners defined by Black Knight as “high-quality refinance candidates.” Those are borrowers with credit scores of 720 or higher, who hold at least 20 percent equity in their homes, are current on their mortgage payments and who stand to shave at least 0.75 of a percentage point from their existing mortgages.
Some 19.4 million homeowners are now in a position to save an average of $309 per month by refinancing, for an aggregate $5.98 billion in potential monthly savings, Black Knight said in a November blog post.
Those eye-popping numbers are made possible by a historic decline in mortgage rates. Black Knight’s figures are based on Freddie Mac’s average 30-year rate of 2.72 percent, which this week fell to a new record low of 2.71 percent.
According to Bankrate.com’s national survey of lenders, the average rate on a 30-year mortgage fell last week to an all-time low of 2.99 percent, including points and other origination costs. The gap with Freddie Mac’s number is because Bankrate’s figure includes points and origination fees averaging 0.32 percent, while Freddie’s number excludes those costs.
If you have a 30-year mortgage for $250,000 at 4 percent, your monthly payment is $1,194. Drop the rate to 3 percent, and the payment falls to $1,054, a savings of $140 a month. (Beware closing costs, however — they can add thousands of dollars to the price of refinancing.)
Rates are at record lows, but mortgages aren’t as easy to get. Worried about the effects of the recession and the risks of elevated unemployment, banks have boosted requirements for credit scores and home equity, and they’re scrutinizing borrowers’ employment situations. Overall, lenders have tightened the availability of credit.
What you can do
To score the best deal on a mortgage:
- Shop around. Closing costs and rates vary by lender, so get three bids.
- Understand the breakeven point. That’s the moment at which the savings in monthly payments offset the amount of the closing costs. This refinance calculator can help you decide.
- Don’t chase the lowest rate. Yes, a low rate and paltry payment are good, but make sure those benefits aren’t overwhelmed by closing costs.