Mortgage Rates Fall To Record Lows. Does It Make Sense To Refinance?

Mar 6, 2020
Originally published on March 6, 2020 7:36 am

STEVE INSKEEP, HOST:

Many people across this country have been calling up mortgage companies and refinancing their home loans because mortgage rates have been hitting record lows. NPR's Chris Arnold is following all of this. Hey there, Chris.

CHRIS ARNOLD, BYLINE: Hey, Steve.

INSKEEP: What is causing people to ask about refinancing now?

ARNOLD: Well, because what's happening is we have all this fear about the coronavirus. And that's translating into lower interest rates. And the way that that's happening is that, obviously, stocks have been crashing. We've been reporting on that. But that means that people are fleeing to safety and to bonds, like Treasury bonds - safer investments. And the Fed's also been cutting rates. And all of that together is pushing down mortgage rates. And mortgage rates are now the lowest that we've ever seen them on record...

INSKEEP: Wow.

ARNOLD: ...Over the past 50 years.

INSKEEP: Well, if you're at the Fed, you've got to be happy about this because you want interest rates to be down to stimulate economic activity amid all of this disruption. But how many people are taking advantage of it, really?

ARNOLD: We're seeing a very big jump. Mortgage applications last week were triple about what they were the year before.

INSKEEP: Wow.

ARNOLD: There's even more of this happening this week. And, of course, people are calling up their lenders because they can save hundreds or thousands of dollars a year. I talked this week with Jay Farner. He's the CEO of Quicken Loans.

JAY FARNER: In the last week, we've probably had three record days. Yesterday was, again, a new record for mortgage applications. It really is one of those once-in-a-lifetime opportunities. I'm not certain we'll see rates like this again.

ARNOLD: And so, you know, this is the one kind of silver lining in all of these dark clouds around the economy with this very scary coronavirus. It's having this effect of lower rates. A lot of homeowners can save money refinancing. And more people can afford to buy houses, too. It makes buying a house more affordable. So this is helping out a lot of people. And it should help the broader economy.

INSKEEP: Although, it is not free to refinance. So how do people know that it's worth it for them?

ARNOLD: Right. I mean, OK. Mortgage rates are at a record low. So by definition, anyone who owns a home has rates that's higher than a rate they could get today. But you have to get a big enough drop in your rate to make it worth it. I talked to Mike Fratantoni, who's the chief economist at the Mortgage Bankers Association. He worked up an estimate based on rates from last week.

MIKE FRATANTONI: More than 80% of all homeowners with a mortgage could have benefited from refinancing. They could have saved at least half a percent in terms of the rate on their mortgage. And then given that rates have fallen even faster this week, you know, that just means that the vast majority of all homeowners at this point likely would benefit from refinancing.

INSKEEP: Wow.

ARNOLD: Yeah. And just to put some numbers around this, if you can drop your rate by one percentage point - I mean, that doesn't sound like much, 1%. But it can have a big effect if you have good credit. A year ago, rates on a 30-year fixed were around 4 1/2 percent. Now they're around 3 1/2. So on a $300,000 loan, that change saves you $2,000 a year on your mortgage payments. So people can really save a lot of money.

INSKEEP: But let me just get back to - it's not free. You do spend thousands of dollars on this refinancing. And you may change other terms. What should people be mindful of as they go for the savings?

ARNOLD: Absolutely. I mean, first, shop around to two or three lenders, especially right now. Some lenders are offering better rates than others. Next thing is fees. Watch those fees. Make sure you're not being overcharged. And make sure it's worth it. And the last thing a lot of people don't understand is, on a 30-year loan, you're paying so much more interest on the front.

You get a little farther in, you're paying down that principal, owning your house a lot more, say, if you're five years in. So it's usually not a good idea to go back all the way back with a new 30-year loan. A lot of lenders will give you a 20 or a 25, 15-year. Those are much better options usually.

INSKEEP: Chris, thanks for the update.

ARNOLD: Thanks, Steve.

INSKEEP: NPR's Chris Arnold.

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