The coronavirus pandemic has caused buyers to flood the markets. Mortgage interest rates are at historic lows, driving increased activity and a shortage of inventory nationwide. But what about mortgage refinancing to take advantage of low rates? According to a new report from Zillow, homeowners who haven’t refinanced “could be tossing thousands of dollars out the window.”
Zillow provides the following scenario: A typical monthly mortgage payment in the U.S. is $951 before taxes or insurance on a home worth $256,663 and with an interest rate of 3.75 percent. But if the homeowners refinanced at a 3.02 percent rate, that mortgage payment would drop to $868, saving almost $1,000 per year. And over the lifetime of a 30-year loan, that would mean savings of $29,880.
“Choosing whether to refinance your mortgage is ultimately a personal choice, but recent moves in mortgage rates have probably made that decision a whole lot easier for those who qualify,” said Zillow economist Matthew Speakman. “Mortgage rate declines have allowed many to lower their monthly mortgage payment or tap into the equity they’ve built in their home by refinancing their loan—offering some financial stability to many in a time of great economic uncertainty. With rates poised to stay relatively low for the immediate future, for many—including those paying mortgage insurance—a refi could remain a worthwhile endeavor.”
According to Zillow, the savings could be more, dependent on location. For example, in the San Francisco and San Jose metros, where homes are typically worth more than $1 million, the monthly savings from refinancing to 3.02 percent from 3.75 percent would be more than $350. Homeowners with smaller loans might not see such benefits. According to the report, in Memphis, Tenn., and Oklahoma City, the difference in monthly mortgage payments would only be $53.
Homeowners must also take into consideration that refinancing can come with fees that range from 2 percent to 6 percent of the loan’s principal, which may offset savings depending on currently monthly payments.