Falling Interest Rates Mean More Homeowners Could Benefit From Refinancing

May 24, 2016

The number of American homeowners who could refinance increased by 1.5 million in the first six weeks of 2016, thanks to declining mortgage rates in January.

According to Black Knight Financial Services’ January Mortgage Monitor Report, the refinanceable population grew considerably after mortgage rates fell by 30 basis points in the first six weeks of 2016. They made this discovery by revisiting a recent analysis of the population of refinanceable borrowers that could both qualify for and benefit from refinancing their 30-year mortgages. Black Knight Data & Analytics Senior Vice President Ben Graboske explained that millions of mortgage borrowers could potentially save thousands of dollars per year by refinancing to today’s lower rates.

“When Black Knight last looked at the refinanceable population just two months ago, there were 5.2 million potential candidates, and that number was on the decline,” said Graboske. “That analysis was shortly after the Federal Reserve raised its target rate by 25 basis points, at which time the prevailing wisdom was that mortgage interest rates would rise in response. Global economic shocks then sent investors looking for the safety of U.S. Treasuries, driving down yields on benchmark 10-year bonds. As a result, an additional 1.5 million mortgage holders could now likely both qualify for and benefit from refinancing, bringing the total number of potential refinance candidates to 6.7 million.”

Graboske went on to explain that this increase in potential candidates could “provide a welcome and unexpected lift to the market as we move forward in 2016.”

Just how much Savings are we talking about?

According to the report, more than 3 million borrowers could save $200 or more per month by refinancing. Nearly 1 million could save $400 or more. The total potential savings available via refinancing now stands at $20 billion per year, with the average borrower potentially saving $3,000 per year.

What this means for your borrowers

  • Save money on their monthly mortgage payment by switching to a lower rate.
  • Refinance out of an adjustable rate mortgage and into a fixed rate mortgage, giving them stability and predictable monthly payments.
  • Refinance into a shorter term mortgage in order to save money on total interest and pay off the loan sooner.
  • Consolidate debt or pay for other expenses through a cash out refinance.
  • For homeowners with existing FHA and VA loans consider whether they may qualify for streamline refinance programs.

How it works

  1. As part of the purchase contract HUD must agree to allow the Repair Escrow. The appraisal must show that the home meets FHA standards and is insurable with a Repair Escrow (and requires no more than $5,000 worth of repairs to become Insurable).
  2. The loan amount is increased by the amount needed for the repairs, and these funds are placed in escrow by the mortgage lender.
  3. The work must begin no later than 15 days after the loan closing.
  4. Documents showing that the work has been completed must be submitted within 60 days of closing.
  5. Funds will be released to pay the contractor for the work on the home.

Photography by [Denis Ismagilov] © 123RF.com

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