- Millions of homeowners can lower mortgage payments by refinancing right now
- What are today's mortgage rates?
- How much does your house payment go down when you refinance?
- Millions of homeowners could save with today's low rates
- Mortgage Refinance Could Save Money — Even if Your Loan Is New
- Many potential refinancers
- You can save a lot
- Tips for the best refinance
- Coronavirus Mortgage Forbearance Relief Has Been Extended: What To Do When It Ends
- 2.7 Million Homeowners Are in Forbearance
- Here Are Your Options After Forbearance Ends
- Consider Today’s Rental Costs
- Foreclosure Is the Worst Choice
- You May Be Able to Pay Off Your Mortgage in a Sale
- Equity in Your Home Could Help You Remain in Place
- Consider Getting a Roommate
- 8 signs your bank account could benefit from a refinance
- How to tell if the time is right
- There are a few ways to know if it’s the ideal time to refinance. You may:
- Tap into an extra ,000
- The average home equity has risen an astonishing ,000 (seen below). This factor alone may make more homeowners eligible to refinance:
- As CoreLogic’s Chief Economist Frank Nothaft explained:
- Cash out or save thousands
- Nearly 6 million people can now cut their mortgage payments with refinancing
- your credit score, income and debt
Millions of homeowners can lower mortgage payments by refinancing right now
Coronavirus has profoundly impacted the economy, but real estate prices have largely held steady — as this recession isn't driven by a collapse in the real estate market as the 2008 financial crisis was. In fact, homeowners are actually taking advantage of lower rates and considering many reasons to refinance their homes, though mainly to save money.
With home values remaining stable in most parts of the U.S. and lower rates (which are at or near record lows due to the Fed's efforts to bolster the economy), millions of homeowners can potentially reduce their monthly mortgage payment — and total costs — by refinancing their homes today.
To explore this option, as well as other mortgage refinance loans, visit Credible to compare rates and loan terms today.
Borrowers looking to refinance have several options, including refinancing into a new 30-year term or opting for a 15-year mortgage instead. Choosing a 15-year mortgage would allow many homeowners who have been paying down their loan to avoid extending their payoff time, while also capturing the lowest possible rates in today's low-interest market.
What are today's mortgage rates?
According to Freddie Mac, the U.S. weekly average mortgage rate for August 27, 2020, was 2.91% for a 30-year fixed-rate mortgage; 2.46% for a 15-year fixed-rate mortgage, and 2.91% for a five-year adjustable-rate mortgage.
That marks a dramatic drop compared with last year at this time when the average rate for a 30-year mortgage was 3.60%; for a 15-year was 3.05% and for a 5/1 ARM was 3.36%.
With a lower interest rate, it's a wise idea to consider refinancing your home to significantly reduce your mortgage payment. To see just how much you could save over time, plug your information into Credible's free online tools now.
10-YEAR TREASURY YIELD HITS RECORD LOW — HERE'S HOW TO PROFIT
Rates have continued to fall as the Federal Reserve has cut its benchmark interest rate in response to the novel coronavirus — and interest rates on home loans have loosely followed the 10-year Treasury which is also hitting new record lows.
Some expect today's lower rates to fall further, although there's no guarantee so those hoping to refinance may not want to wait on the sidelines as passing up the chance to refinance at rates near historic lows could be a serious mistake.
With Credible, you can compare multiple mortgage lenders at once and see what kind of refinance rates you qualify for within just minutes. Plus, it doesn't impact your credit score.
THESE ARE THE BEST (AND WORST) REASONS TO REFINANCE YOUR MORTGAGE
How much does your house payment go down when you refinance?
Homeowners across the country are looking at a golden opportunity to make their homes more affordable with a lower monthly payment through a mortgage refinance loan.
In fact, real estate data firm Black Knight reports that 90% of homeowners with equity in their homes had mortgage loans with rates above the prevailing market average in early July. And as many as 75% had rates above 3.5%, which is 1% above the current average interest rate on a 15-year mortgage loan.
Fannie Mae, on the other hand, estimated that close to 60% of all outstanding loan mortgages could be lowered by at least half-a-percentage point.
Buyers who see a 1% drop in their mortgage by refinancing could save substantially on their borrowing costs. A borrower with a 30-year $300,000 mortgage at 3.5%, for example, would pay $1,347 per month for the life of the loan and would incur a total cost of $484,968.
If that same borrower instead refinanced to a 15-year $300,000 mortgage at 2.51%, monthly payments would be a bit higher at $2,002 but the total cost of the mortgage would be just $360,320.
The 15-year loan would enable the borrower to become debt-free in half the time and save over $120,000 in interest.
If you're looking to both save on interest and lower your monthly mortgage payments, refinancing to a loan with the same repayment term could achieve both objectives. A $300,000 30-year loan at 3.
88%, for example, would have monthly payments of $1,412 and a total cost of $508,165. For a borrower who could obtain the same loan at today's average rate of 2.
88%, payments would come down to $1,245 monthly and total interest costs would fall more than $50,000 to $448,373.
To see how much a refinance reduces your payment and to better understand your total cost savings, enter your current loan amount into Credible and crunch the numbers instantly.
THIS MORTGAGE RATES MISTAKE COULD COST YOU THOUSANDS
Millions of homeowners could save with today's low rates
Although today's mortgage rates present a historic opportunity to reduce home borrowing costs for millions of homeowners, not everyone is in a position to refinance.
Before moving forward, you'll want to make sure you plan to remain in your home long enough for the savings associated with refinancing to cover the closing costs you'll incur during the process. It's also important to make sure you're in a good financial position to apply for a new home loan at a competitive rate.
If you can fulfill these requirements, visit Credible today to compare rates and home loan terms to see if refinancing your mortgage makes sense for you. You may very well be one of the millions of homeowners who can save by securing a new home loan, so shopping around to find out is worth the effort.
Refinance calculators can also be helpful to determine if a home loan modification — a refinance — makes sense for you. Consider the cost of your refinance, how much it will lower your monthly bills, and how long it will take you to recoup the cost of your refinance.
HOW REFINANCING YOUR MORTGAGE COULD PUT CASH IN YOUR POCKET
Mortgage Refinance Could Save Money — Even if Your Loan Is New
NOTE: Due to the coronavirus outbreak, refinancing may be a bit of a challenge. Lenders are dealing with high loan demand and staffing issues. If you can’t pay your current home loan, refer to our mortgage assistance resource. For the latest information on how to cope with financial stress during this emergency, see NerdWallet’s financial guide to COVID-19.
Millions of homeowners could benefit by refinancing their mortgages, even if they bought or refinanced as recently as May 2019. A typical refinance could save more than $150 a month.
Homeowners are getting the message. According to the Mortgage Bankers Association, refinance applications jumped 79% in the week ending March 6, compared with the previous week. Even though mortgage rates have rebounded a bit since then, millions of homeowners could save money by refinancing.
» MORE: Compare today’s refinance mortgage rates
Many potential refinancers
One rule of thumb says to consider refinancing if you can cut the mortgage rate by three-quarters of a percentage point. By that measure, millions of homeowners could benefit by refinancing into today’s mortgage rates, according to Black Knight, a technology, data and analytics provider for the mortgage industry.
In late February, Black Knight estimated that 14.5 million homeowners would be “refinance candidates” if mortgage rates fell to 3.25%. In early March, the average rate on a 30-year fixed-rate mortgage dipped to that level and a little below.
“One rule of thumb says to consider refinancing if you can cut your mortgage rate by three-quarters of a percentage point.”
Black Knight defines refinance candidates as people with 30-year mortgages “who are current on their loans, have credit scores of 720 or higher, hold at least 20% equity in their homes, and who could cut their current interest rate by at least 0.75% via a refi.”
This refinance opportunity landed unexpectedly. Mortgage rates fell in February and into March, as COVID-19, the disease caused by the new coronavirus, spread beyond China and throughout the U.S. The 30-year fixed fell to its lowest level since Freddie Mac began tracking rates in 1971. The Federal Reserve cut short-term interest rates to cushion the economic blow from the outbreak.
Then, beginning March 9, came the oil-price war between Russia and Saudi Arabia, and mortgage rates continued falling. According to NerdWallet's daily mortgage rate survey of large lenders, the average rate on the 30-year fixed-rate mortgage fell from 3.42% on Feb. 19 to 3.16% on March 9.
That represents a decline of more than three-quarters of a percentage point since May 2019 — meaning there are refinance candidates who bought their homes or refinanced their loans just 10 months ago.
» MORE: You may be able to refinance more often than you think
You can save a lot
The average amount of a mortgage refinance was $364,300 in the last week of February 2020, according to the Mortgage Bankers Association. On a loan of that amount, the difference between a 4% interest rate and a 3.25% rate is $154 a month in principal and interest, and $1,845 a year. (Assuming that you refinance into another 30-year loan, instead of a shorter term.)
To find out how much you could save:
If the numbers look promising, you’ll want to estimate your break-even period: the time it takes for the accumulated monthly savings to exceed the loan fees.
For example, if you pay $3,600 in fees to save $100 a month, it will take 36 months to break even ($3,600 divided by $100 equals 36).
If you believe you’ll stay in the house beyond the break-even period, it might be worthwhile to refinance.
» MORE: Mortgage refinance closing costs to watch out for
Tips for the best refinance
In most cases, you can refinance whenever you want, although some lenders require “seasoning” between mortgages, requiring a certain period to pass between appraisals.
You can refinance to the same payoff date as your current loan, which can be useful when you want to pay off the mortgage before retirement or the kids go off to college.
For example, if your 30-year mortgage is exactly 5 years old when you refinance, you can request to pay off the new loan in 25 years.
Tell the lender to amortize the mortgage for 25 years (or whatever number of years you wish).
Example: A $364,300 loan (remember, that was the average refinance amount at the end of February 2020) at a 3.25% interest rate, for 30 years, has a monthly principal and interest payment of $1,585.46.
If you pay off the same loan over 25 years instead of 30, the monthly principal and interest payment costs $1,775.29, or $189.83 a month more. But by chopping five years off the loan, you save $38,178.
When they can afford it, many people refinance from a 30-year to a 15-year loan. The shorter loan usually has higher monthly payments, but you save even more interest than shortening the loan by five years.
Coronavirus Mortgage Forbearance Relief Has Been Extended: What To Do When It Ends
Editorial Note: Forbes may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.
Mortgage borrowers facing the end of their forbearance plans in March just received a reprieve, courtesy of the Federal Housing Finance Agency (FHFA).
Initially, borrowers facing hardship due to the pandemic qualified for a 180-day mortgage forbearance under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, with the option to extend it for an additional 180 days.
Now, the FHFA is giving borrowers three more months of forbearance. That means homeowners can opt into a forbearance plan for a total of 15 months. If your plan was set to expire next month, you now have until June to exit forbearance. Borrowers must be in a forbearance plan as of February 28, 2021 to qualify for the three-month extension.
This additional time offers an opportunity for struggling homeowners to put themselves in the best position possible before their forbearance expires.
Even with the three-month extension, if you know that you won’t be able to afford your mortgage and the extra forbearance payments once the relief ends, it’s important to come up with a plan as soon as possible. We talked to experts about what choices homeowners can make depending on their goals and financial situation.
2.7 Million Homeowners Are in Forbearance
The total number of mortgages in forbearance has remained about the same for the last few months, accounting for about 5.38% of servicers’ portfolio volume as of January 24, according to the Mortgage Bankers Association. That makes around 2.7 million homeowners currently enrolled in forbearance plans.
“While new forbearance requests dropped slightly, the rate of exits from forbearance was at the slowest pace since MBA began tracking exit data last summer,” said Mike Fratantoni, senior vice president and chief economist at MBA. “Homeowners still in forbearance are ly facing ongoing challenges with lost jobs, lost income and other impacts from the pandemic.”
Once forbearance ends, homeowners are responsible for the missed payments and accrued interest. There are several ways to repay that balance, including:
- A repayment plan. In this scenario, you would resume your regular mortgage payments and add part of your forbearance balance to that payment each month, until your forbearance balance is paid off. Ask your lender if they can work with you to come up with a repayment plan that’s affordable.
- Lump-sum payment. Once the forbearance period ends, you would owe the total sum (principal and accrued interest) in one payment. If your monthly payments were $2,000 and you paused them for six months, you would owe $12,000 plus interest at the end of your forbearance.
- A deferral or partial claim. For homeowners who can afford to resume their mortgage payments but can’t afford more than that, you can defer the forbearance balance to the end of the loan (so when the mortgage ends, the forbearance balance payments begin) or you might be eligible for a junior lien, which puts off repayment until they refinance, sell or the mortgage ends.
- Loan modification. For borrowers who want to keep their homes, but can’t afford their mortgage payments and have come to the end of their forbearance options, they can apply for a loan modification. A loan modification is a free service that lowers the interest rate or balance of a home loan or extends the terms in order to make the monthly payments more affordable for the borrower.
Of course, there’s always the option to sell your home—which is a better strategy than missing more payments (after your forbearance period is over) and going into foreclosure. We’re currently in a seller’s market, which is excellent news for homeowners.
If you have equity in your home, you might be able to sell, repay your mortgage and forbearance and still pocket a profit.
If this looks the best path for your current situation, work with a real estate professional as soon as possible.
They can guide you through the process before and hopefully help you sell or rent your home before there are any negative consequences to your credit score (late or missed mortgage payments).
Here Are Your Options After Forbearance Ends
Forbes Advisor spoke to several mortgage experts to get their advice about homeowners’ best options after forbearance.
Consider Today’s Rental Costs
“In all situations, consider the rental prices available right now versus the prices of owning and managing a home. Choosing to strategically default can drastically hurt your credit score, which may have long-term repercussions.
It may make more sense to sell your home, stabilize and when you’re ready, own a home again with a substantially lower interest rate on your mortgage payment.
” —Andrew Wang, founder and CEO of Valon, a New York-based mortgage servicing company.
Foreclosure Is the Worst Choice
“It is far better to sell than to go into foreclosure and ruin your credit for a number of years. Many people have been forced into financial hardship due to the pandemic. Working to maintain a good credit rating is key to their recovery.
Being in forbearance has no negative ramifications to one’s credit scores; however, not making payments and going into default and getting foreclosed upon is disastrous to a credit score.
”—Melissa Cohn, executive mortgage banker at William Raveis Mortgage in New York City
You May Be Able to Pay Off Your Mortgage in a Sale
“If you decide to sell your home, you may find you’re able to ask for a sale price that would pay off your mortgage in full, especially since home equity levels are extremely high.
But it’s important to note homeowners will have to pay for the months they were in forbearance, including interest owed.
” — Dara Blume Clewely, director of financial risk and economics at online mortgage lender Better.com
Equity in Your Home Could Help You Remain in Place
“There are providers out there that will buy some of your home equity from you while letting you keep title and control of your home. The amount they pay for a slice of your home may be enough to bridge you to when you’re able to be stabilized.”—Andrew Wang
Consider Getting a Roommate
“Through home-sharing, it’s possible to earn an average of $10,000 a year that can be used to offset mortgage costs. There are also other financial gains, such as splitting bills and expenses with a housemate.
Additionally, since home-sharing generates passive income, it’s still possible to pick up a part-time job or contract work to make up the slack.
”—Riley Gibson, president of Silvernest, an online home-sharing platform geared toward retirees and empty nesters.
8 signs your bank account could benefit from a refinance
Reading Time: 3 minutes
It’s been a big year. As a result of the pandemic, mortgage rates dropped to new lows 16 times in 2020. Moving into 2021, rates are beginning to rise slightly as vaccines become more available — though they remain within “historically low” territory.
With mortgage rates as low as this, close to 13 million homeowners* still eligible to refinance could see substantial savings.
How to tell if the time is right
Refinance applications shot up 224 percent when rates dropped at the onset of the pandemic. A year later, and millions of homeowners could still take advantage. Black Knight’s recently released Mortgage Monitor Report* found that around 13 million homeowners with a 30-year mortgage may qualify for and benefit from refinancing.
There are a few ways to know if it’s the ideal time to refinance. You may:
- Be looking to lower your current interest rate.
- Be hoping to lower your monthly mortgage payment.
- Have a need for cash, i.e., covering unforeseen expenses or paying for college.
- Have improved your credit score.
- Need money for home improvements or upgrades.
- Need to consolidate your debts.
- Want to change your loan terms.
- Want to shorten your loan term and pay your mortgage off early.
Shortening a loan term can be a smart choice at a time when mortgage history is being made. Converting from a standard 30-year home loan to a 20- or even 15-year loan term could offer significant savings.
This week’s average mortgage rate is around 3.05 percent.
Reduce a loan’s term, and your payment may not necessarily change, but you’ll pay off your mortgage sooner. This may save you upwards of $42,000 in interest.
Otherwise, you could keep your 30-year loan term and refinance to lower your monthly payment. Refinancing a $269,000 median-priced mortgage at roughly 4.5 percent interest to today’s rate of around 3.05 percent (with an estimated 3.23 percent Annual Percentage Rate) may make a monthly payment (estimated at $1,141) about $222 cheaper.** Annual savings could add up to over $2,600.
Tap into an extra $17,000
Refinancing can pay off when rates are low or if your home’s value has recently increased. With low inventory causing home prices to rise, this is ly.
The average home equity has risen an astonishing $17,000 (seen below). This factor alone may make more homeowners eligible to refinance:
Home equity is a portion of the total wealth you’ve accumulated as a homeowner. Refinancing is one of the most common ways to leverage this growth in your investment.
Compared to last year, the average equity is 10.8 percent higher. Accounting for the $17,000 in equity gains, the average homeowner with a mortgage may have $194,000 in equity available.
Since today’s rates are still at historic lows, it’s possible that you could refinance to access considerable cash, without changing your monthly payment. This cash can go toward college, renovations, vacations, and other big purchases. In the past year, many homeowners facing hardships have also used their equity to help cover household expenses.
As CoreLogic’s Chief Economist Frank Nothaft explained:
“Strong home price growth has created a record level of home equity for homeowners… This provides an important buffer to protect families if they experience financial difficulties and is one reason for the generational-low in foreclosure rates reported.”
When market mortgage rates are over 1 percent lower than your current mortgage rate — as is the case for millions of today’s homeowners — it’s a good idea to meet with your loan officer.
In fact, keeping the same mortgage rate for the life of a loan isn’t necessarily encouraged. It’s not an industry standard. As a rule of thumb, having a regular mortgage check-in can help ensure a loan’s numbers, and its savings, are still competitive.
If you’re shopping around, it’s always smart to request rate quotes from a minimum of three lenders. Once you get your quote, don’t just look at the rate.
Comparing APRs (apples to apples) can give you a clearer picture of how much a mortgage actually costs, including additional expenses.
Loan terms and other perks — a lender that offers you access to the latest remote mortgage technology and has the in-house manpower to expedite your closing — might also influence your final pick.
Cash out or save thousands
Lock in a historically low mortgage rate today, and you’ll automatically lower your monthly payment. Or, you could reduce your loan term to see long-term savings or even cash out to pay for the unexpected. All while keeping your monthly payment the same. Contact your loan officer to learn about your options.
**MBS Highway estimate, for illustrative purposes only.
While refinancing could make a significant difference in the amount you pay each month, there are other costs you should consider. Plus, your finance charges may be higher over the life of the loan.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.
Nearly 6 million people can now cut their mortgage payments with refinancing
Natalie Campisi, Bankrate.com
The average interest for 30-year fixed-rate mortgages is nearing 4 percent again, ushering the way for millions more homeowners to save money by refinancing.
The recent drop in rates means that 5.9 million people potentially can save money by refinancing their existing home loans and securing a lower rate — two million more than last month, according to a new report by Black Knight.
The combined savings totals $1.6 billion, or an average of $271 per person per month.
The sharp drop in rates comes as a surprise, as most experts were betting that rates would be on the rise, says Mark Hamrick, Bankrate’s senior economic analyst.
For borrowers, however, this is an unexpected gift.
“The fact that this swoon in rates has occurred as and when it has underscores the fact that accurately predicting the future of rates is difficult indeed. So instead of trying to outsmart the market, go with what you know for certain which is where rates are right now,” Hamrick advises.
“Between the pace of the news cycle and economic developments, the environment can change with release of a single presidential tweet. In an uncertain environment, seize upon certainty where you can find it.”
your credit score, income and debt
Before you spend the time applying for a mortgage refinance, be sure you check your balance sheet and credit first.
Applying for a refinance is similar to getting a mortgage in that lenders will consider your FICO score, debt-to-income ratio and employment history when evaluating your application.
Your interest rate is a reflection of your financial situation and banks tend to reward low-risk customers with better rates.
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Borrowers want to aim for a credit score of over 740 and a loan-to-value ratio of 75 percent or under to nail down the best rates, says Melissa Cohn, executive vice president at Family First Funding in Toms River, N.J.
The income needed for a loan is dependent on the bank’s qualifications. For self-employed borrowers, additional proof of income may be required to meet loan prerequisites.
Homeowners who have improved their credit score since getting their original mortgage should see if refinancing makes sense for them.
For every 20-point increase in credit scores, the interest drops about 0.125 percent. So if someone had a 680 credit score and now has above a 760, this alone will improve their rate by about 0.5 percent, says Daniel M. Shlufman, mortgage banker at Classic Mortgage in Maywood, N.J.
For people who are hoping to lock in a better rate but are not currently financially ready to do so, create a financial game plan now for a better position down the road.
This includes paying down debt and saving money for an emergency fund — so that credit cards are not the go-to in a pinch.
“Anyone who has owned a home for a modest period of time can attest that unexpected expenses are the rule, not the exception. In addition, life brings its own surprises and added expenses,” Hamrick says.
“For young families, that might include the birth of a child and related added expenses. By boosting your own finances, effectively paying yourself, you’ll also be boosting your creditworthiness which can only help one achieve financial goals overall.”
Falling rates might seem a money windfall if you have a higher interest rate than what’s available today, but make sure refinancing bolsters your bottom line.
Expensive lender fees can actually put you in the red if you decide to refinance and the savings don’t outweigh the expense.
Generally, you need a drop in the rates of 0.5 percent to 1 percent — depending on the monthly savings and the closing costs — to justify doing a refinance, Shlufman notes.
The rule of thumb is that the savings should be enough to recoup the closing costs within about 18 months to make a refinance justifiable.
“If the closing costs are $3,600, you would need a savings of about $200 per month on the mortgage payment for a refinance to be worthwhile,” Shlufman says.
“The larger the loan, the more ly a refinance will make sense since most of the closing costs are fixed — for example, appraisal fee, recording fees, etc. — while the monthly savings will be much greater.”
Refinancing also makes sense is if you have private mortgage insurance, or PMI, and the house value has increased so that there is equity of at least 20 percent.
Refinancing into a lower rate not only shaves off interest costs but also knocks out monthly PMI payments, which are typically 0.5 percent to 1 percent of the total loan on a yearly basis.
For borrowers with a $200,000 mortgage and a PMI payment of 1 percent, for instance, that’s a savings of $2,000 per year or $167 per month.
FHA loan borrowers are another group that can potentially benefit from refinancing into a conventional loan. As PMI is more expensive on FHA loans, those qualified borrowers might save a small mint by reducing or eliminating their FHA PMI and locking in a lower rate, Shlufman says.
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Those who want to reduce their terms and go from a 30-year fixed-rate mortgage to a 15-year loan might be able to ax an additional 0.5 percent from the top, as 15-year loans usually have lower rates.
That might also mean larger monthly payments, but overall less interest paid over the life of the loan.
Adjustable-rate mortgage holders can also profit from dropping rates. The timing might be right to lock via a fixed-rate mortgage as rates continue to hover around the 4-percent mark.
Finally, those hoping to tap their equity while reducing their interest rate can take advantage of cash-out refinances.
These are low-interest loans that allow homeowners to borrow against their equity by replacing their existing mortgage with a new loan for a higher amount and receiving the balance in cash.
These can be useful for people who want to make home improvements as the interest is tax-deductible.