The global economy’s pain has become the Jones family’s gain.
Worries about trade tensions and slower growth have caused long-term bond yields to plummet this year, and mortgage rates have followed them downward.
With the cost of a 30-year mortgage down more than a percentage point in nine months, many homeowners are seizing the chance to knock hundreds of dollars off their monthly house payment.
Central West End resident Corey Jones said his wife, Sheila, a real estate agent, noticed that rates were dropping and thought it might make sense for them to refinance. She was right: They recently closed on a 30-year mortgage at a little over 4%, replacing an adjustable loan whose rate had gone above 5%.
They’ll save $287 a month, which will go toward savings, upkeep on the 130-year-old house and educational expenses for two daughters, ages 13 and 11.
“We’re thrilled, and if rates continue to go down we will evaluate whether it makes sense to refinance again,” Corey Jones said.
Indeed, there’s no minimum holding period for a mortgage. Taylor and Hannah Pope just refinanced the Kirkwood house they have owned for only nine months, reducing the interest rate from 4.875% to 4.125%.
Taylor Pope worried last fall that he was locking into an interest rate that might be about to drop. His intuition was solid — average rates across the U.S. fell to 3.6% last week from 4.9% in November, according to Freddie Mac — but his loan officer told him refinancing would be inexpensive and relatively hassle-free.
“They told us that if the rate did come down they would take care of it, and they did,” Pope said. The couple’s mortgage payment fell by $168 a month, which he said will make it easier to afford day care for their two young children.
USA Mortgage, which handled the Popes’ and Joneses’ mortgages, has added 47 employees since July 1, partly to staff new offices and partly to handle the refinancing boom. President Doug Schukar says refis account for 38.4% of this month’s loan activity, compared with 11.5% last August.
After a summer of steadily falling rates, he expects refinancing to become even more popular. “With the refi boom going on, we can’t get processors, underwriters and closers fast enough,” Schukar said. “August will be the biggest loan-lock month in the history of our company, and it looks like September will be a blowout month too.”
This windfall for homeowners is an opportunity almost nobody saw coming. “A year ago, rates were going up, up and up,” says Greg McBride, chief financial analyst at BankRate.com. “It wasn’t expected that we were going to see rates moving back down, certainly not to this magnitude.”
McBride advises borrowers to start researching a replacement mortgage if they can reduce the rate by half to three-quarters of a percentage point. If you have a large mortgage, even a smaller interest-rate move may bring significant savings.
Black Knight, a housing industry analytics firm, estimates that 9.7 million U.S. households could shave at least three-quarters of a percentage point off their mortgage by refinancing. In the St. Louis area, the firm estimates that 97,000 households are in a position to refinance, with an average savings of nearly $200 a month.
If you’re one of them, it’s time to heed the market’s call.