July 24, 2020
Almost a third of homeowners with a mortgage could save nearly $300 a month because mortgage rates are near historic lows, according to a new analysis.
About 15.6 million homeowners — or 30% of those with a mortgage — could lower their monthly payment by $289 if they refinance, according to numbers provided to Yahoo Money by Black Knight, a loan research and analytics firm. The calculus comes when the average rate on the 30-year fixed mortgage edged up to 3.01% this week, after hitting a record low 2.98% last week.
If all eligible candidates refinanced, that would equal $4.5 billion per month in total savings, a potentially significant and much-needed boost to the economy. But the savings may be elusive for many of the millions of Americans who remain out of work.
“In theory, there’s no reason why [those] homeowners should not be able to refinance and save money,” said Jeremy Sopko, founder at Nations Lending, a mortgage lender. “The reality is that people are struggling, and job insecurity is going to have a major impact on whether or not those people can actually refinance.”
‘Creditworthy homeowners will benefit’
The window of opportunity may only apply to the most cash-flush and creditworthy borrowers, or those with a credit score of 700 or higher, given the uncertain climate.
“Lenders are navigating a housing market, facing ongoing uncertainty due to the COVID-19 pandemic’s impact on the broader economy,” said Joel Kan, associate vice president of economic and industry forecasting at the Mortgage Bankers Association, a trade organization.
Top banks such as JPMorgan Chase have already raised minimum credit scores to 700 and now require at least 20% down payment for new home loans.
“Mortgage lenders are being exceptionally cautious about who they lend to, in part due to a fear of borrowers who immediately request forbearance on the loan, before the loan can be sold on by the issuer,” said Jeff Tucker, economist at Zillow.com. “This is putting pressure on lenders to effectively narrow their credit box, especially reducing access for borrowers with FICO scores below 700.”
Stringent credit requirements aren’t the only factor that may hinder Americans. Job security is also another major concern for lenders.
Over the past four months, more than 51 million Americans have filed for unemployment claims, with another 1.42 million workers filing last week. Those Americans could be shut out of taking advantage of the rate environment.
“Interest rates have never been lower, after all, and the vast majority of homeowners should be able to benefit,” Sopko said. “In principle, though, it’s a lot more complicated as the same person who could theoretically qualify for a refinance today, who has a great job and a steady income, could be without those things tomorrow.”