So far 2017 has been a rough year for homeowners looking to save money by refinancing, and the Federal Reserve’s interest-rate hike may not help.
On average, borrowers who refinanced during the first quarter of 2017 reduced their monthly payments by $109, not including homeowners who opted for cash-out refinances, according to figures released Wednesday by mortgage technology firm Black Knight Financial Services. Altogether, homeowners who refinanced in the first quarter saved $36.5 million a month — representing the lowest total monthly savings from refinancing since 2008.
Comparatively, aggregate savings for homeowners who refinanced in the fourth quarter of 2016 amounted to $59 million, but the savings per borrower was just $96 a month. While higher rates cut into the actual savings homeowners are experiencing from refinancing remains down,recent interest rate decreases prior to the Fed’s decision have made it possible to save more.
At current rates, if every homeowner with a mortgage who could refinance did, their potential savings would average $260 a month, up from October when the savings averaged $250 a month.
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Recent drops in mortgage rates have also expanded the number of borrowers who have an incentive to refinance and meet eligibility criteria by 1.6 million from mid-March to 4.4 million in June. And some of those 4.4 million borrowers stand to save significantly by refinancing. Black Knight calculated that roughly 2.5 million borrowers could cut their monthly payments by between $100 and $300, while another 700,000 could save $400 or more each month.
But the fact that mortgage rates have dropped back down below 4% doesn’t mean borrowers should take their time with a refinance. The Federal Reserve hiked interest rates by 0.25 points on Wednesday as expected and could do so again this year depending on the state of the economy.
If that moves mortgage rates higher, homeowners looking to refinance should work to lock in lower rates, which allow borrowers to avoid the volatility of the current rate environment, according to Realtor.com. And for those homeowners who do lock in rates on a refinance, it’s important to remember that the rate lock is typically only good for between 30 and 45 days — once outside that window, they could lose out on savings if rates have gone up.
Rising rates don’t just make things dicier for those looking to refinance, though. A 4% interest rate won’t make owning a home significantly less affordable per se, but it theoretically can give homeowners who recently refinanced pause when considering moving to a new home with a higher rate. More homeowners staying put could further reduce the already-tight supply of housing in many markets nationwide, which could in turn drive prices even higher.