About 6.7 million of the nation’s homeowners — including 231,800 in Illinois — could be cutting their monthly mortgage payments sharply by refinancing their loans, a study by Black Knight Data & Analytics indicates. In Illinois, homeowners could average $241 a month in savings.
Nationally, the average borrower could reduce their payments about $3,000 per year, for a total of $20 billion in savings, Black Knight calculated.
The savings are possible because mortgage rates are now about a third of a percentage point lower than they were late last year. Rates were rising at the end of 2015 as investors expected the economy to strengthen and the Federal Reserve to raise rates. But this year, the opposite happened. Investors have been worried about a slowing global economy, and that has caused mortgage rates to fall.
Nationally, Freddie Mac reported 30-year fixed rate mortgage rates at 3.64 percent Wednesday, leaving ample room to refinance 4.5 percent mortgages and cover the costs involved in the transaction, said Ben Graboske, senior vice president of the firm.
“It’s a head-scratcher why more borrowers haven’t refinanced,” said Graboske. “They are literally leaving money on the table.”
Depending on the costs involved, Graboske noted that some people may find it worthwhile to refinance even with mortgages at 4.25 percent or close to 4 percent.
During 2015, refinancing activity fell about 27 percent as interest rates started to climb and people figured the window of opportunity had shut. But in just the first six weeks of this year, the total number of borrowers that could refinance at worthwhile rates had increased about 30 percent, Black Knight found. About 5.2 million had mortgages in the 4.5 percent range.
Black Knight calculated at the end of February that about 3.3 million could save at least $200 a month, and nearly one million could save $400 million. In contrast, with interest rates higher at the end of 2015, only 800,000 would have saved more than $200 a month.
Many Americans have been ineligible for refinancings because their credit has been too weak or they have lacked 20 percent equity in their homes. Black Knight focused on people who had solid FICO credit scores of 725 or above, and adequate equity in their homes.
At the end of 2015, Black Knight reported that Americans had $4.2 trillion in equity in their homes, a 17 percent increase from the prior year. As people have been building up equity in their homes, the number of cash-out refinancings has been rising. Last year they were up 39 percent, and Graboske expects the trend to continue as people realize they can benefit from recent low rates.
During the third quarter of 2015, borrowers were removing cash from the equity in their homes during 42 percent of refinances — the highest level since 2008. The average amount of cash was $60,000. During 2015, homeowners tapped $64 billion in equity.
With interest rates low, Graboske said borrowers have been more eager to do cash-out refinancings than to take on home equity loans. But when interest rates start to climb, he said he thinks more homeowners will take on home equity loans rather than refinance their entire mortgage.
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