Millions of American homeowners could still slash hundreds of dollars off their mortgage payments simply by refinancing to a new low mortgage rate deal. That’s the message coming from data firm Black Knight, which suggests 16.7 million borrowers could lower their mortgage rate by at least 0.75% by approaching the best refinance mortgage companies.
How much could refinancing save you?
The typical refinance candidate would save $303 a month on their mortgage payments as a result, and potentially tens of thousands of dollars over the lifetime of a loan, if not more, the research revealed.
The low mortgage rate environment is one of the few positives to emerge from the coronavirus pandemic, with record low borrowing costs regularly being posted over the past year. But while millions of homeowners have already rushed to take advantage with a new mortgage deal, many more are still missing out. Some 3.8 million could actually save more than $400 per month using the best mortgage lenders.
As the table below shows, many of those who could benefit the most live in just a handful of states. Californians, in particular, are paying an unnecessarily high mortgage price by not refinancing, with almost 2.5 million residents in the state missing out on an average saving of $415 per month.
| State | Refinance candidates | Average savings per borrower |
|---|---|---|
| California | 2,492,000 | $415 |
| Florida | 1,226,000 | $265 |
| Texas | 1,154,000 | $260 |
| New York | 976,000 | $415 |
| Illinois | 677,000 | $275 |
| Pennsylvania | 555,000 | $264 |
| North Carolina | 552,000 | $254 |
| Virginia | 548,000 | $345 |
| Ohio | 547,000 | $216 |
| New Jersey | 529,000 | $367 |
Could you benefit from refinancing?
Even though rates have recently been ticking up, Freddie Mac reveals that the average rate on a 30-year fixed-rate mortgage was still just 2.73% last week, and significantly lower than the average of 3.45% seen a year ago. As a result, even if you arranged a mortgage as recently as January last year, and are yet to refinance your mortgage since, a huge reduction in your rate could be achieved by making a move now.
In particular, you stand to gain if your rate will reduce by around 0.75% - so from 3.50% to 2.75%, for instance - and you have a 30-year mortgage. It will also help if you have good credit, and a decent lump of equity in your home - maybe 20% or more - so that you can access the very lowest rates. It also appears that those who would probably find the extra dollars that refinancing would free up most useful have so far been slowest to act.
“This rate environment is advantageous for those who are looking to refinance in order to strengthen their financial position,” said Sam Khater, Freddie Mac’s Chief Economist. “While many have already refinanced, the evidence suggests that upper income homeowners have taken advantage of the opportunity more so than lower income homeowners who could stand to benefit the most by lowering their monthly mortgage payment.”
Why you need to act now
If you’re yet to make your refinance move, getting started sooner rather than later is the best advice we can give. As already noted, mortgage rates have recently been rising, and as the roll-out of COVID-19 vaccines continues, and optimism over the economy improves, it’s likely borrowing costs will generally head higher over the year ahead. The credit score required to get a mortgage has been rising too, so don’t delay any longer if you can help it.
Shopping around for a mortgage deal is key, with online brokers the quickest and easiest way to source rates and terms from a number of lenders at once.
