Is now the time to refinance a mortgage?
Fed’s decision can help homeowners save
Now is an opportune time for homeowners who haven’t refinanced.
The Federal Reserve signaled this week that it won’t raise interest rates in 2020, a boon to Americans seeking cheaper borrowing costs.
Although many homeowners locked in cheaper rates in the years after the financial crisis, there still are Americans who could cut down their monthly mortgage payments. About 6.8 million borrowers could benefit from refinancing, according to a report from Black Knight, a mortgage data analytics company.
“Being able to trim $150 per month out of the household budget by refinancing to a lower rate could be the pay raise homeowners didn’t otherwise get,” Greg McBride, chief financial analyst at Bankrate, said in a note.
Mortgage rates have hovered around historic lows, which helped drive a surge in refinancing. Mortgage application activity rose 3.8% last week, boosted by refinance volume, according to the Mortgage Bankers Association. Applications to refinance a home loan jumped 9% for the week ended Dec. 6 and were 146% higher from the same week a year earlier.
Those rates are roughly a percentage point lower than this time last year. The average rate on a 30-year fixed mortgage was 3.73% during the week through Dec. 12, down from 4.63% a year earlier, Freddie Mac said. The average rate on a 15-year mortgage fell to 3.19% from 4.07% a year earlier.
Homeowners who plan to remain in their home for the next three to seven years should assess their refinancing opportunities, experts said. Given the spread that homeowners have between their mortgage rate and market rates, they could look at shortening the loan term and reduce their overall borrowing cost for the life of the loan, according to John Pataky, executive vice president at TIAA Bank.
It’s a state-by-state situation. Some housing markets have lower mortgage-related costs when it comes to state and county fees, he said.
Homeowners who have an ARM, or a mortgage loan that has an interest rate that adjusts or changes, could lock in a fixed rate before borrowing costs move higher in the next few years.
The average contract interest rate for 5/1 ARMs rose to 3.52% from the previous week’s 3.28%, according to the MBA.