Numbers Count: Possible savings for refinancing

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Numbers count. They matter to bankers and to prospective homebuyers, sellers, and real estate professionals. Here’s my take on the key numbers on the housing market this week.

The numbers: Estimated savings targets on refinances
Graph showing possible savings for both traditional and HARP refinances. (From Black Knight Financial, published with permission.)

(Graphic published with permission.)

More than 6 million mortgage borrowers could likely qualify for and benefit from refinancing their mortgage and an additional 450,000 may be eligible to refinance under the government’s Home Affordable Refinance Program (HARP), according to Black Knight Financial’s latest Mortgage Monitor published July 6. Black Knight found that borrowers in aggregate could save about $1.66 billion through traditional refinancings and HARP refis. Black Knight estimates that about 550,000 American homeowners with a mortgage could save $500 or more each month by refinancing at current rates. More than 3 million could save at least $200 per month.

What counts: As the purchase mortgage market gets stronger and interest rates start to rise, it’s important to remember there are still refi opportunities out there, both traditional refis and government-supported HARP refis. Here are a few things to consider:

Traditional refinance:

* As general guidance, if you plan to stay in your home for several years, a simple refi makes financial sense if you can lower your rate by at least 50 basis points. The lower payment will typically offset the upfront refi expenses, such as the appraisal cost and lender fees. But talk to a lender to run the numbers to see what works for your particular situation.

* If you’re in an adjustable-rate mortgage, a refinance into a fixed-rate mortgage may be beneficial as a way to provide stability in your monthly payments for the long term. Compared to fixed-rate mortgages, adjustable-rate mortgages tend to carry a lower initial rate that adjusts in the future as rates fluctuate up or down, affecting your monthly payment.

* If you are paying mortgage insurance, you may want to consider refinancing. For example, borrowers with FHA loans, which are available with as little as 3.5% down, are required to pay mortgage insurance for the life of their loans. If you’ve lived in your home for a few years, it’s possible you now have more than 20% equity and you may be able to qualify for a non-FHA loan and avoid having to pay mortgage insurance.

HARP refinance:

HARP is a government-backed program to encourage refinancings by homeowners who are underwater or close to underwater on their mortgage and would not typically qualify for a traditional refi, as Vic Polich wrote about recently. Keep in mind the two basic requirements are:

  • the loan-to-value (LTV) on your home is greater than 80%, and
  • you are current on your mortgage payments.

If you believe you fit these two basic conditions, you may want to talk to a mortgage banker to get the full details about a HARP refinancing, or visit www.harp.gov.

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