A sharp drop in interest rates last week suddenly made millions more borrowers eligible to refinance their mortgages.
With the average rate on the 30-year fixed now close to 4 percent, 4.9 million borrowers could likely qualify for a refinance that could reduce their interest rates by at least three quarters of a percentage point, according to Black Knight, a mortgage data and analytics company. That is a nearly 50 percent increase in the size of that population in a single week.
“While this will certainly impact buying power and housing demand as we enter the spring homebuying season, it’s also had a massive impact on refinance incentive almost overnight,” wrote Black Knight researchers in a monthly report. “After seeing refinance volumes drop significantly in late 2018, this is a game changer for both the housing and refi markets if rates hold at this level for an extended period of time.”
On a $300,000 mortgage a refinance of, for example, 4.81 percent to 4.06 percent would save the homeowner about $133 per month. On a $600,000 loan, it would be twice that savings, or $267 per month.
Of course it’s important to factor in closing costs, which would be amortized over the length of the loan. For someone not intending to stay in the home for more than a few years, a refinance might not save them much.