Curve

5 million homeowners suddenly “in the money” to refinance

Peter Warden
The Mortgage Reports editor

Falling rates mean rising opportunities for homeowners

Millions of homeowners could now save each month on their mortgage payments, according to a new report. That’s because they’re suddenly “in the money” to refinance as a result of a dramatic decrease in mortgage rates in March.

Those rate drops mean that nearly 5 million people for whom refinancing didn’t previously make sense can now go ahead and claim serious savings.

The report comes from the Data and Analytics division of Black Knight, which claims to manage “the nation’s leading repository of loan-level residential mortgage data.”

Shop low rates from top lenders. (Aug 26th, 2019)

How much can YOU save?

How much you personally could save will depend on the size of your mortgage. When CNBC covered the report, it gave examples.

If you currently pay a rate of 4.81 percent, you might now qualify for one of 4.06 percent. And, if you have a $300,000 loan, you’d save $133 every month. Those with bigger loans would save proportionately more: $267 on $600,000. But, of course, those with smaller ones would make smaller savings.

Rates vary all the time and the ones in CNBC’s examples may no longer apply by the time you read this. But you can model your own potential savings by checking current mortgage rates and then using a refinance calculator.

Other options

The fall in rates last month also makes accessing the “equity” you’ve built up in your home more affordable. (Your equity is the amount by which the current market value of your home exceeds your mortgage balance today.)

Via a cash-out refinance, you can take a bigger loan than you have now and receive the difference in cash.

Of course, there are disadvantages to taking out home equity. And it’s something to consider carefully. But if you’re likely to have a need for cash in the near future, now might be a good time to line up that finance. You can choose between a cash-out refinance, a home equity loan and a home equity line of credit (HELOC).

Related: Cash-out refinance vs home equity loan: The better deal might surprise you

Experts expect lower rates to create higher demand for those products. Ben Graboske, president of Black Knight’s Data and Analytics division, predicts, “… we could see a noticeable rebound in homeowners tapping available equity via cash-out refis in coming months given the increased rate incentive to do so.”

Request refinance rates from up to four lenders. (Aug 26th, 2019)

How long will you be “in the money” to refinance?

Mortgage rates can be volatile. March’s rate falls made it the most friendly month for borrowers in a decade. But such sharp reductions are sometimes followed by a bounce, which may be short and sweet — or longer and more bitter.

And it’s true that the last couple of business days that month and the first in April saw rises. Of course, those were small compared with March’s overall drop.

What to look out for

Right now, nobody knows whether mortgage rates will continue upward, hold close to steady or resume their downward trend. That will likely be determined by big news stories and economic reports published in coming days. As a general rule, events and reports that are favorable for the U.S. economy tend to be bad for mortgage rates, while unfavorable ones are good.

As a general rule, events and reports that are favorable for the U.S. economy tend to be bad for mortgage rates, while unfavorable ones are good.

So a successful conclusion to the current U.S.-China trade talks might well see mortgage rates rise, while a bad deal or no deal could see them tumble even further. The same applies to Brexit and to Friday’s monthly employment situation report. You can track mortgage rates and read about factors likely to affect them in our daily updates:

Mortgage rates today, plus lock recommendations

But it may turn out that this window of opportunity is short lived. So, if you want to take advantage of it, you may want to get a move on.

Don’t forget closing costs

When you refinance, you get a whole new mortgage. And, just as with your original one, you have to pay closing costs.

But there’s good news. You won’t typically have to fund those yourself. You can instead roll them up into your loan, allowing you to pay them down with the rest of your mortgage.

However, they remain a real cost, even if they’re not an immediate one. So you need to bear them in mind (and the extra interest you’ll pay if you do roll them up in your loan) when you calculate whether the savings you stand to make are worthwhile.

Do you have enough equity?

You may be in the money to refinance. But do you have enough equity to qualify?

This can be less of an issue if you want a “rate-and-term” refinance. That’s one where your goal is to get a better deal and you don’t want to take cash out.

When equity is not an issue

Indeed, some mortgages (FHA, VA and USDA loans) offer streamline refinances. It’s common with those for lenders not to require a home appraisal at all. They may even not check your credit score or verify your income or assets.

And Fannie Mae’s High LTV Refinance Option” and the “Freddie Mac Enhanced Relief Refinance” can see you get approved even if your loan’s a bit underwater, meaning you have negative equity.

When you need equity

However, if you want a cash-out refinance, home equity loan or HELOC, you’ll likely hit a cap on your loan-to-value (LTV) ratio. Lenders often want you to have no more than 80 percent of your home’s value taken up with borrowing secured on it. However, some may be more generous, especially for equity lines.

If you choose to refinance, shop around

Think tanks release study after study. They all come to the same conclusion. Consumers can save thousands by calling more than one lender.

But many refuse to do that.

With one click, shop up to four of the nation’s top lenders below.

Shop today's top refinance lenders now. (Aug 26th, 2019)