Millions of homeowners could benefit by refinancing their mortgages, even if they bought or refinanced as recently as May 2019. A typical refinance could save more than $150 a month.
Homeowners are getting the message. According to the Mortgage Bankers Association, refinance applications jumped 79% in the week ending March 6, compared with the previous week. Even though mortgage rates have rebounded a bit since then, millions of homeowners could save money by refinancing.
Many potential refinancers
One rule of thumb says to consider refinancing if you can cut the mortgage rate by three-quarters of a percentage point. By that measure, millions of homeowners could benefit by refinancing into today’s mortgage rates, according to Black Knight, a technology, data and analytics provider for the mortgage industry.
In late February, Black Knight estimated that 14.5 million homeowners would be “refinance candidates” if mortgage rates fell to 3.25%. In early March, the average rate on the 30-year fixed rate mortgage dipped to that level and a little below.
Black Knight defines refinance candidates as people with 30-year mortgages “who are current on their loans, have credit scores of 720 or higher, hold at least 20% equity in their homes, and who could cut their current interest rate by at least 0.75% via a refi.”
This refinance opportunity landed unexpectedly. Mortgage rates fell in February and into March, as COVID-19, the disease caused by the new coronavirus, spread beyond China and throughout the U.S. The 30-year fixed fell to its lowest level since Freddie Mac began tracking rates in 1971. The Federal Reserve cut short-term interest rates to cushion the economic blow from the outbreak.
Then, beginning March 9, came the oil-price war between Russia and Saudi Arabia, and mortgage rates continued falling. According to NerdWallet’s daily mortgage rate survey of large lenders, the average rate on the 30-year fixed-rate mortgage fell from 3.42% on Feb. 19 to 3.16% on March 9.
That represents a decline of more than three-quarters of a percentage point since May 2019 — meaning there are refinance candidates who bought their homes or refinanced their loans just 10 months ago.