Mortgage rates are falling, and some homeowners are racing to refinance.
How much can the average homeowner save by refinancing? It depends on where they are starting from.
The 30-year fixed-rate mortgage fell to an average of 6.63% on March 6, the lowest level in three months and the biggest one-week drop since mid-September, according to Freddie Mac FMCC. A year ago, the 30-year rate averaged 6.88%.
“This decline in rates is already providing some existing homeowners the opportunity to refinance,” Sam Khater, chief economist at Freddie Mac, said in a statement. “In fact, the refinance share of market mortgage applications released this week reached nearly 44%, the highest since mid-December.”
Falling rates are prompting some homeowners to refinance their mortgage, including those looking to lower their monthly mortgage payments.
About 17.2% of homeowners in the U.S. who have a mortgage have an interest rate of 6% or more, according to an analysis of federal government data by Redfin RDFN, a real-estate brokerage. That’s the highest share on record since 2016.
On a mortgage for a median-priced $400,000 home with a 10% down payment, a drop in rates of even half a percentage point, from 7% to 6.5%, saves the buyer about $120 per month, Lisa Sturtevant, chief economist at Bright MLS, said in a statement.
The vast majority of current homeowners, however, have little reason to refinance their mortgage to obtain a lower rate. About 83% of homeowners with a mortgage have a rate of less than 6%, and 21% have a rate of less than 3%, Redfin said.
Certain homeowners who are refinancing may be cashing in on the home equity they’ve built up.
Some homeowners have done cash-out refinances to extract equity from their homes. With a cash-out refinance, they replace the balance on their current mortgage with a bigger loan at prevailing interest rates.
The most common reason borrowers give for doing a cash-out refinance is to pay off other debt such as credit cards and car loans, according to a January report by the Consumer Financial Protection Bureau, a government agency. The report looked at borrowers’ behavior between 2014 and 2021.
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