Is it time to refinance?

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According to a recent analysis by Black Knight, approximately 5.9 million homeowners nationwide could reduce their mortgage payments by refinancing. Earlier in the year, 30-year fixed rates fell below 4 percent and now average around 3.94 percent.

Black Knight estimates that the savings to be about $271 per month for the average borrower.

Of course, the lower interest rates mean homes are currently a bit more affordable as the average monthly payment on a median-priced home – assuming a 20 percent down payment – has fallen nearly 6 percent in the last half year.

Be Wary of No-Cost Refinancing

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While the mortgage industry is very competitive, it’s smart to be careful when considering no-cost refinancing. The fact is, there are considerable costs involved – usually between $2,000 and $5,000 – and they must be paid for somehow.

Are your costs being rolled into the total loan amount? If so, you’re borrowing and paying interest on more than the outstanding balance.

Or are you being charged a higher interest rate to cover costs?

It pays to remember that fees vary by lender (and often location) and are negotiable.

California Sees Large Refinance Boom

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No doubt spurred by the uncertainty surrounding the US presidential election, Californians led the country in refinance originations. According to the U.S. Residential Property Loan Origination Report there were 876,633 refinance originations in the third quarter of 2016, an increase of 16 percent over 2015.

Analysts agreed that the election along with concern over the likelihood of rising interest rates led many homeowners to lock in rates which are still historically low.

In Northern California, San Jose saw a 65 percent increase in refinancing-activity gains while San Francisco and Sacramento saw activity rising by over 50 percent.

Homeowners Not Refinancing

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Even though rates for home loans remain near historically low levels, many homeowners – roughly 7 million (!) – are not taking advantage and reducing their monthly rates. It’s estimated that approximately 6.7 million borrowers could save an average of $3000 per year for a total of a cool $20 billion in potential annual savings.

The reason these borrowers with sufficient equity and high enough credit scores are not lowering their mortgage rates? Largely lack of awareness, according to industry experts. While the Federal Reserve did raise its target interest rate in early December 2015, the global economic situation kept home rates low.

Is now the time to refinance? For nearly 7 million homeowners, the answer remains Yes.

Time to Cash Out?

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For more and more homeowners the coming year could be a great time to cash cash out some home equity by refinancing their home loan. Basically, this means converting part of your home equity into money, adding to your loan’s balance. As rates remain reasonable in the 4 percent range this gives homeowners a chance to pay off higher interest credit card balances or renovating the house.

During the real estate boom years cash-outs were very common, then all but disappeared when the market imploded. With home equity as it’s highest point in years, it may be making a comeback.

Time to Refinance?

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The Black Knight Financial Services Inc. reports that approximately 6.5 million homeowners could qualify and benefit from a traditional refinancing or the HARP program. Of these, nearly 3 million current borrowers could save at least $200 per month and 500,000 would see savings of $500 or more on a monthly basis.

On an aggregate basis this come comes to $1.66 billion that American homeowners could be saving every month or nearly $20 billion per year.

Of course, refinancing is extremely rate sensitive. If rates were to rise even half a percentage point then 2.6 million borrowers would no longer benefit from refinancing.

The Time to Refinance Is – Now?

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According to the Mortgage Bankers Association, residential finance applications rose nearly 50 percent in one week in January, the largest gain in one week since November 2008. With rates at their lowest since May 2013, nearly two-thirds of the applications were to refinance.

Moreover, the low rates are increasing jobs in the home construction industry as employment increased by nearly 7 percent in December.

Analysts also believe that 2015 could be the year in which Millenials become home buyers for the first time.

Time to Refinance?

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With mortgage rates currently at – or near – the lowest of the year, many homeowners think to refinancing. Here are some benefits to refinancing:

  • Build equity more quickly – if you’re able to swing a 15-year loan, you’ll save many many thousands of dollars in interest costs over the course of your loan
  • Eliminate mortgage insurance – lower monthly payments by eliminating this added expense
  • Lower consumer debt – take the money you save by lowering monthly mortgage payments and pay down those high-interest credit cards
  • Move to a fixed mortgage rate – move away from stress-inducing adjustable rates

These are just a few reasons why refinancing often makes sense – and save you cents.