Many homeowners are feeling a tad richer after refinancing – some again and again – thanks to the Fed’s never-ending efforts to drive down interest rates.
Call it the Re-Fi Re-Do.
Some homeowners nationwide are in the unusual spot of refinancing a couple of times in the past couple of years. And the saga could continue in the months ahead, after the Federal Reserve’s extra efforts to keep mortgage rates low.
“It makes all the sense in the world,” said Greg McBride, senior financial analyst for Bankrate.com.
Some borrowers can save money when they spot a rate that’s at least half a percentage point lower than their existing rate, experts say. More typically, people tend to move when they see more than a full percentage point drop.
Robert Traviss, 48, refinanced in September – the second time in four years – and saved roughly $150 a month.
Traviss, who lives in Monroe, Mich., and works at a utility company, said he and his wife started with a rate around 8 percent in 1999, refinanced to about 6 percent in 2008, refinanced again in September and now have a rate at 3.75 percent.
The couple, who owe $112,000 on their mortgage, pay extra each month so they’re not just refinancing and dragging out the mortgage another 30 years.
“It’s kind of a no-brainer to save $200 when everybody’s hurting these days,” he said.
Take another example: Say a homeowner refinanced a $200,000 mortgage in January at a rate of 4.25 percent. If that homeowner now refinances to 3.7 percent, McBride said, he or she would save $63 a month. The monthly mortgage payment would drop to $920 from $983 a month.
To be sure, we’re not talking about the high-flying days of refinancing, when people grabbed thousands of extra dollars out of the house to pay for cars, trips or other goodies.
Data from mortgage giant Freddie Mac showed that in the second quarter of this year, 23 percent of homeowners who refinanced reduced their principal balance during the process and 59 percent maintained the same loan amount.
The percentage of borrowers keeping about the same loan amount was the highest in the 27 years of tracking.
Naomi Pennington, 69, who lives outside of Houston, didn’t want to tap into equity when she refinanced in September.
“Who would want to owe more money?” she asked. Instead, she refinanced to drop her rate by about 3 percentage points to 4.25 percent. She’s saving $300 a month on the payment. It’s her second refinance in five years.
These days, some homeowners who refinance even might bring extra money to the table to be able to pay a little more toward what they owe, said Joel Gurman, vice president of mortgage banking for Quicken Loans.
As people refinance for the second go-around in a few years, Gurman said, some may opt to go with a shorter-term mortgage, maybe 20 years or 15 years, to save money in the long term.
Refinancing, of course, is a math problem. How much will it cost you to refinance to save “x” amount of dollars? How long will it take you to recoup the costs?
“Refinancing does have costs,” said Kathy Conley, housing specialist for GreenPath Debt Solutions, a nonprofit HUD-approved housing counseling agency.
It may not make sense for someone in their 80s to spend $4,000 upfront to save $50 a month, she said. Talking to a housing counselor in advance can help work out the numbers.
Mark Stevens, a regional sales executive for Bank of America overseeing Michigan, Ohio and upstate New York, said he saw more daily refinance applications in September than in the previous month, thanks to the Fed’s latest move.
His advice to consumers is not to rule anything out. Some federal programs covering Fannie Mae and Freddie Mac mortgages allow for refinancing even if the homeowner owes more than the house is worth.
“Don’t think that you can’t do it,” Stevens said.