Typical refinance savings: close to $300 a month
Rates on 30-year fixed-rate mortgages are now averaging just 2.88% — down from the April high of 3.18% and not far from January's all-time low of 2.65%, according to the long-running survey from mortgage giant Freddie Mac.
With rates at their current levels, some 13.9 million U.S. homeowners are in the sweet spot for refinancing and could put a big dent in their borrowing costs, the mortgage data and technology firm Black Knight tells MoneyWise.
Together, today's refinance candidates could save $4.05 billion monthly by refinancing — which works out to average savings per borrower of $293 a month.
You think that's good? Black Knight says 1.7 million of those homeowners could see monthly savings of $740 via a refinance. The company has said its data takes into account the millions of homeowners who already have refinanced amid the pandemic.
How to know if you should refi
Despite the past year's stunning mortgage rates and hefty potential savings, many homeowners apparently decided to procrastinate rather than refinance. A recent Zillow study found 78% never traded in their loans over the past year.
Want to hop on board the refi train? Black Knight says you're a good candidate if:
- You've got a 30-year mortgage with an interest rate you could reduce by at three quarters of 1 percentage point through a refinance — like go from 3.75% down to 3% or better. You might meet this criteria if your current mortgage is less than two years old, because 30-year fixed-rate mortgages were averaging 3.72% at the start of 2020.
- You have a good-to-exceptional credit score of at least 720. If you haven't looked in a while, it's easy today to get a peek at your credit score for free.
- You have at least 20% equity in your home, which means you've paid in 20% or more of the home's current market value.
Why refinancers should move quickly
Homeowners who could refinance and reap the savings may not have a much time to waste.
Experts say mortgage rates are bound to move higher as the economy improves and the Federal Reserve starts raising interest rates again. The Fed has indicated it's likely to do that during the second half of 2023, though some analysts say the central bank is likely to move sooner if it needs to tamp down inflation.
If you've been on the fence about refinancing and are thinking about making the jump, check rates from several lenders to find the best deal available for your area and for a person with your credit profile.
You may find you're an ace at comparison shopping — which is a handy talent that also can help you save on your homeowners insurance. When your policy comes up for renewal, get multiple rate quotes to see if another insurance company offers the same coverage you currently have, but at a lower price.