Mortgage rates continue to drop, and it’s prompting homeowners to refinance their current mortgages. It’s believed that the decline in mortgage rates has been prompted by the belief that the chairman of the Federal Reserve is not biting at the bit to raise short-term interest rates this year. Loan officers and brokers are overwhelmed by the massive number of refinance applications that have been flowing in.
With so many people refinancing, one must wonder exactly how much these homeowners are saving and what’s so appealing about refinancing at this point in time. Most homeowners are changing from a thirty-year mortgage to a fifteen-year mortgage, saving them tens of thousands of dollars over the term of their loan. Applicants are surprised when they find out that their payment does not increase drastically, yet their payoff time is cut in half and they’re saving thousands of dollars by taking these steps. Applicants who don’t qualify for a fifteen-year mortgage are still refinancing at a lower interest rate, but are opting to utilize the bi-weekly payment method to pay their loans off early and still save thousands of dollars in interest.
As for how much homeowners are actually saving by refinancing at a lower rate and changing to a fifteen-year plan, it depends on the amount of the mortgage and the exact interest rates involved. If a homeowner has a 30 year mortgage for $150,000 with an 8 percent interest rate, their monthly payments are going to be about $1100 per month and over the life of the loan they will have paid close to $250,000 in interest. If that same homeowner takes that same mortgage amount over a 15 year mortgage period and refinances it at 5.5 percent interest rate, their monthly payment is going to be about $1225, only $125 more per month than the thirty year mortgage, and they are going to pay their mortgage of in half the time while saving about $175,000 in interest. So it’s starting to make sense why so many people are flocking to lenders to refinance their homes, isn’t it? The larger the mortgage amount and the higher the original interest rate, the higher the amount saved.
Rates are expected to stay low in the near future, signifying that we are likely to see the number of homeowners that are refinancing continue to increase. Good news for lending institutions and homeowners alike.
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