With Mortgage Rates Rising Again, Waiting to Refinance Could Be Costly

What low rates mean for your loan

Despite recent declines in mortgage rates, many homeowners who can benefit still haven’t joined the refi rage.

Some 13 million U.S. mortgage holders could save substantial amounts of cash by refinancing, according to estimates from mortgage technology and data provider Black Knight.

Altogether, refi candidates could save $3.68 billion monthly by refinancing, which works out to average savings per borrower of $283 a month, Black Knight says. What’s more, 1.5 million of those homeowners could save $500 or more each month by taking out new loans.

Time may be running out on those deals. Though average rates on 30-year fixed-rate mortgages recently slipped into "the 2s" for the first time in months, this week the typical rate has climbed back to 3%, the long-running survey from mortgage company Freddie Mac showed on Thursday.

According to a separate study from the Mortgage Bankers Association, the average 30-year fixed mortgage rate jumped to 3.15% at the end of last week, up from 3.11% a week earlier.

To be sure, rates remain low compared to very recent history.

“Rates were still lower than levels reported in late March and early April, providing additional opportunity for borrowers to refinance," Joel Kan, the MBA’s chief forecaster, said Wednesday.

But as the economy improves — now that more than 124 million Americans are fully vaccinated and people are going out again — mortgage rates are likely to follow a slow but steady upswing.

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Should you be refinancing now?

Deciding whether to refinance your current mortgage isn’t rocket science, but it does take a bit more math than just comparing today’s mortgage rates (they obviously tend to fluctuate, depending on the source) with the one you locked in when you bought your house.

Homeowners must consider a few key points:

1. The rate on their existing loan and the typical one being offered in the market.
2. How much equity they have in their home.
3. How long they plan to live there and how much they're likely to pay in closing costs. If you don’t plan to stay in your house for at least a few years, you may not get back what you spend on the various refinance fees.

Assuming an average of $5,000 in closing costs, Freddie Mac estimates that 24 million borrowers would recover closing costs within five years of refinancing. And over that time, borrowers could save an average of about $12,000 in mortgage payments.

The government-sponsored mortgage giant, which looked at 30-year fixed-rate loans in recent decades, found that around 4.7 million mortgages that were originated between 2009 and 2019 have rates about 1 percentage point higher than the current market rates.

And, over 450,000 loans that were taken out from 2000 to 2008 have an average mortgage rate of 6.17%. That’s more than 3 percentage points above Freddie Mac’s latest rate update.

Black Knight says those who could benefit the most from refinancing are 30-year mortgage holders who can shave off at least three-quarters of a percentage point (0.75) from their current mortgage rate. They should also have at least 20% equity built up in their homes and have minimum credit scores of 720.

If you haven’t seen your score in a while, it’s easy to get a peek at your credit score for free.

Ready to take the plunge into a refi?

Refinance loan applications last week were up 4% from a week earlier and accounted for 63.3% of all mortgage demand, the mortgage bankers say.

If you’re ready to join the current refi boomlet, be sure to check mortgage rates from several lenders to find the best deal available in your area.

While you’re flexing your comparison shopping muscles, take a look at the latest rates on homeowners insurance. If your policy is coming up for renewal soon, get multiple price quotes to see if another company offers the same coverage you have now, but at a lower rate.

And if now’s not the time to refi, why not try to earn a little extra cash to help with your mortgage payments, or your housing costs in general? A popular app helps you earn returns in the red-hot stock market in a fairly effortless way: by investing your "spare change" from everyday purchases.