The ongoing pandemic has impacted every corner of society, from education to healthcare. Businesses have closed, leaving millions unemployed. A recent survey shows that 25% of U.S adults have lost their jobs due to the pandemic.
However, there is a silver lining amidst the chaos. Mortgage rates are still at an all-time low. This has presented a rare opportunity for homeowners to save millions by refinancing. This article looks at why millions are still eligible for massive mortgage savings.
Why Mortgage Rates are So Low
Mortgage rates hit an all-time low between December and January 2021 when it went below 3%. The last time the rates for a 30-year-fixed mortgage were this low was in 2012 when the economy was struggling. In most cases, the plummet mortgage rates are usually triggered by the Federal Reserve.
When the virus hit in 2020, the economy took a hit as business operations ceased. In response, the Federal Reserve implements monetary policies to try to shore up the economy. In particular, by selling government bonds and security-backed bonds. Consequently, the price of mortgages goes down.
Why Putting It Off Might Cost You
Mortgage refinancing involves taking out a new loan to pay out the original loan. The best time to refinance a mortgage is when the interest rates are at their lowest. By locking a new mortgage at a lower rate, you could save money in the long run. Refinancing is not always a good idea, but since the interests are at a historic low, you have the chance.
By the first and the second quarter of 2020, refinancing jumped by an impressive 60% as millions rushed in to take advantage of the lower rates. This number continued swelling until January when the rates were dipped below the 3% mark. Surprisingly, millions of Americans who are eligible were still skeptical and chose to watch on the sidelines.
Although the rates have since increased, the average current rate of about 3.18% is still quite attractive. Anyone who took a mortgage while the interest rates were at 4% can still save some money by refinancing. Even after refinancing fees and closing costs, you could still save hundreds of dollars in monthly payments. With the economy slowly stabilizing, the chance of a lifetime might be passing you.
In addition to saving you money, refinancing is also an opportunity to shorten your loan terms, consolidate debt, and lock in better rates. However, interest rates rarely stay constant. According to the latest market research by Freddie Mac, the interest rates have been slowly rising. It started at 2.73% in January and is now at 3.18%. All indications that it will continue rising.
How to Find Low Refinancing Rates
Many people are tempted to jump at the first offer they get. However, you can always get the best rates if you know where to look. With patience and research, there is always a better deal elsewhere.
Here are some tips on finding the lowest refinancing rates.
Take Another Look at Your Credit Report
Although millions are queuing to lock in lower rates, not everyone is eligible. Your credit score plays a big part in whether you get the green light or not. According to the Federal Housing Administration, you need a minimum score of 580. However, most lenders require a credit score in the range of 600-620.
If your score is 720 and higher, you could be losing out on $247- $745 in saving per month. Since your credit score holds so much power, you should scrutinize it to make sure it’s correct. It is not uncommon for these reports to be incorrect.
Don’t Cash Out if You Don’t Have To
Due to the tough economic times, many homeowners are taking cash-out refinancing. This arrangement allows you to settle your original mortgage. Any extra money left after adding closing fees is yours to spend as you wish. The only problem is that it comes with slightly higher interest rates due to the higher loan amount. You should only take this route if you must.
Thanks to the internet, it is a lot easier to compare different loan products without leaving the comfort of your sofa. Refinancing your mortgage is a potentially life-altering decision. This, it makes sense to find out what else is out there before you sign the dotted lines. You can compare rates from local lenders and choose the best one.
Experts recommend comparing at least three lenders before committing. It may seem like a chore, but it could save a lot of money. The last thing anyone wants is to learn of a better deal minutes after buying what you thought was the best deal.
- Moneywise: https://moneywise.com/a/ch-oath/mortgage-demand-sags-even-though-11m-are-still-eligible-to-refinance
- CNBC: https://www.cnbc.com/2020/11/24/a-record-19point4-million-homeowners-can-now-save-big-on-a-.html
- Bankrate: https://www.bankrate.com/mortgages/homeowners-can-save-with-mortgage-refinance/
- FOX Business: https://www.foxbusiness.com/money/homeowners-missing-mortgage-refinance-savings