Mortgage Lending

Mortgage interest rates are now at their lowest levels in nearly three years. This has led to a surge in applicants seeking to refinance their home mortgage. From the latest data provided by Freddie Mac, the average rate on a 30-year, fixed-rate mortgage fell to 3.75 percent, down nearly a full percentage point from the beginning of the year. Meanwhile, the average rate for a 15-year, fixed-rate mortgage is down to 3.37 percent, the lowest since September of 2016. This is music to the ears of homeowners and buyers alike.

Homeowners Rush to Refinance

For millions of borrowers, especially those who’ve purchased a home when rates weren’t as favorable, there may be no better opportunity than now to pocket major savings with refinancing. In fact, since the Federal Reserve cut rates at the end of July to cap off the rate drop that was already happening, mortgage-refinance applications have increased 116% nationwide, compared to this time last year, according to the Mortgage Bankers Association. By refinancing, a homeowner could slash 0.75 percent off their current interest rate, resulting in a monthly reduction in costs, and subsequently thousands of dollars in savings over the life of the mortgage. Also, depending on the type of loan, refinancing could significantly shorten the length of the mortgage.

Does Refinancing Make Sense for Everyone?

Just because interest rates are low, doesn’t mean buyers have to refinance right away, nor does it mean they are necessarily good candidates for it. It really just depends on the homeowner’s situation. In order to refinance, a borrower will have to pay closing costs again, which can include banking fees and appraisal fees, among other things. For example, on a $120,000 home, closing costs could run around $5,000. If that refinancing reduces the homeowner’s payment by $100, that equates to roughly 50 months (or more than 4 years) until those closing costs are recouped, which may not make the most sense. Many lenders agree that in most cases, you should only refinance if you can recoup those costs within 2-3 years or less.

However, if a buyer has built up significant equity in a house, or if they have repaired credit from when they initially purchased the home, for example, the numbers would look different. A buyer that purchased a home for $300,000 with a 6% interest rate could refinance down to 3.75%, reducing their monthly payment by more than $200 and reducing their total costs by $30,000 or more over the duration of the loan, which would be life changing.

Refinancing – Options to Consider

There are also different types of refinancing available to cater to different situations. A cash-out refinance allows the borrower to leverage their home’s equity. With $100,000 in equity on a $200,000 home, the homeowner could refinance with new terms, use that $100,000 to pay off personal debt like credit cards, and then receive the remaining money as a check to be used for whatever they want. Mortgage money is cheaper than consumer debt. While someone may be paying upward of $15/month for every $1,000 in consumer debt, mortgage money is around $5/month for every $1,000.

Another option is to refinance to lower the term of a mortgage. For example, a homeowner could refinance their 5% 30-year mortgage to a 3.75% 15-year mortgage while keeping their monthly payment relatively the same. Imagine being able to pay off your mortgage 15 years earlier than expected.

Favorable Time for Home Buying

From a homebuyer’s perspective, the lower the mortgage rate, the more house one can afford. For example, say a $200,000 home with a 5% interest rate equates to a monthly payment of $1,800. If the rate is 3.75% instead, that buyer could then afford a home in the $220,000 range with roughly the same $1,800/month payment. Or, they could choose to stay in the $200,000 price range and enjoy a lower monthly payment. For home buyers still on the fence deciding if 2019 is the right time to place an offer, they should know lower interest rates play in their favor and represent a positive sign to making a purchase.

So, with interest rates at their lowest levels in almost 3 years, now is the time for buyers who may be on the fence about buying to make the jump, and it’s also a great time for current owners to evaluate if refinancing makes sense for them. If so, which types of refinancing work best? At AmeriFirst Home Mortgage, our experienced loan officers like Bob Gratz can help answer those questions and more. Our team of mortgage originators has the knowledge and experience to give your clients the best options to suit their needs.

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*Down payment, rates and terms shown are for informational purposes only and are not intended as an advertisement or commitment to lend. Not intended as accounting or investment advice. Contact your tax preparer for more information. Not all borrowers will qualify.


“Millennials Drive Mortgage Refinance Boom, and Lenders Are Scrambling: Mortgage Bankers Association.” MBA, org/servicing-newslink/2019/august/servicing-newslink-tuesday-8-13-19/top-national-news/millennials-drive-mortgage-refinance-boom-and-lenders-are-scrambling.

“Mortgage Rates Remain Near Historical Lows – Freddie Mac.” Remain Near Historical Lows – Freddie Mac, 8 Aug. 2019, http://www.freddiemac. com/pmms/.