As rates slide, opportunities open up

Miniature wooden houses and a red arrow down. The concept of falling mortgage rates
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Rates on 30-year fixed-rate mortgages dropped last week to an average 2.99%, according to mortgage giant Freddie Mac, which has been conducting weekly rate surveys since 1971. That's just a notch above the all-time low of 2.98, reached in mid-July.

The current ultra-low rates give 17.8 million homeowners an incentive to refinance their higher-rate home loans and cut their monthly mortgage payments by an average $287, Black Knight said Monday.

Altogether, those mortgage holders could slash their interest costs by $5.1 billion a month, which Black Knight calls "a significant amount of potential economic stimulus" amid the COVID-19 recession.

You're considered a good candidate for a refi if you can shave at least three-quarters of a point — 0.75 — off your current 30-year mortgage rate. That means, for example, refinancing from a mortgage at 3.90% to a loan with a rate of 3.15% or better.

You also need to be current on your mortgage, which may be tricky for some borrowers during the pandemic. As U.S. unemployment has soared, millions of Americans have put their mortgage payments on hold by requesting forbearance from their lenders due to financial hardship.

Other important factors before you apply for a refinance mortgage: You'll need a credit score of 720 or higher, and you should have at least 20% equity in your home, Black Knight says.

Don't gamble on the possibility of even lower rates

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Despite almost unbelievably low mortgage rates and their financial benefits for homeowners, refinancing has been running hot and cold. The most recent report from the Mortgage Bankers Association showed refi loan applications were down 0.4% during the week ending July 24.

"It is possible that many borrowers have already refinanced or are waiting for rates to go even lower," Joel Kan, the trade group's associate vice president of forecasting, said recently.

But mortgage rates are notoriously impossible to predict, and you could find yourself waiting for lower rates that never come. Interest rates have been falling as financial markets have been rattled by fears that both the U.S. economy and the coronavirus outbreak could get worse.

"Should significant, positive news surface on either of those fronts, mortgage rates would likely move higher, possibly quickly," says Matthew Speakman, an economist with Zillow.

So, experts say don't risk losing out on an attractive rate and hundreds of dollars in savings available right now. Research refinance offers from several lenders — and pounce when you find something that would work well for you. Different lenders can offer widely different mortgage rates, so shopping around is vital.

It also works well when the time comes to renew your homeowners insurance. You can easily go online, get several home insurance quotes, and find the policy offering the best coverage at the right price.

About the Author

Doug Whiteman

Doug Whiteman


Doug Whiteman is the editor-in-chief of MoneyWise. He has been quoted by The Wall Street Journal, USA Today and and has been interviewed on Fox Business, CBS Radio and the syndicated TV show "First Business."

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