Owners of the typical U.S. home that currently have a mortgage interest rate pegged to year-ago levels could save almost $30,000 over the course of a 30-year loan by refinancing at today's much-lower rates.
The monthly mortgage cost on the typical U.S. home, worth $256,663 in August, would be $951 with a 3.75% mortgage rate, near where rates were a year ago. But with a 3.02% rate, that monthly payment (principal and interest only) drops to $868, which adds up to annual savings of almost $1,000. Over the lifetime of a 30-year loan, the difference between a 3.75% rate and a 3.02% rate (the average rate for a 30-year fixed-rate mortgage on Zillow Mortgages on September 22, 2020) comes out to a shade less than $30,000 ($29,880). Well-qualified borrowers may even be able to secure a rate less than 3%, potentially saving them even more.
One effect of the coronavirus pandemic on the U.S. economy has been persistently low interest rates. The Federal Reserve lowered key benchmark interest rates to near 0% in March to help bolster the national economy, and shows no sign of raising them. As a result, mortgage rates, which generally follow bond yields and other key rates, have lingered near historic lows.
And because mortgage payments are based on the price of the home loan, homeowners in pricier markets could see savings of hundreds of dollars each month by refinancing to a lower mortgage rate. In the San Francisco and San Jose metros, where the typical home is worth more than $1 million, the annual savings from a 3.02% rate instead of a 3.75% rate is more than $4,300. For buyers currently struggling with low inventory and rising home prices, low rates could offer an opportunity to stretch their budgets while still keeping monthly payments manageable — potentially opening up more/different areas to consider that might have been out-of-budget at a higher rate.
Refinancing does come with additional fees, so homeowners with smaller loans may not benefit from the current low rates unless their current rate is significantly higher. For example, in El Paso, Texas (where the typical home was valued at $140,161 in August, well below the national figure), the difference in monthly mortgage payments on the typical home with a 3.75% mortgage rate and 3.02% mortgage rate is only $45.
And refinancing sooner rather than later may also result in more savings. Beginning Dec. 1, government-sponsored mortgage giants Fannie Mae and Freddie Mac will begin charging a so-called "adverse market fee" equivalent to 0.5% of the outstanding loan amount on many (but not all) refinanced mortgages. This fee, intended to protect the firms from pandemic-related risk and uncertainty, will total about $1,400 on the typical loan, according to the Mortgage Bankers Association.
| Metro Area | Typical Home Value in August | Monthly Payment with a 3.75% Rate* | Monthly Payment with a 3.02% Rate | Annual Payment with a 3.75% Rate | Annual Payment with a 3.02% Rate |
|---|---|---|---|---|---|
| United States | $256,663 | $951 | $868 | $11,412 | $10,416 |
| New York, NY | $493,579 | $1,829 | $1,669 | $21,948 | $20,028 |
| Los Angeles-Long Beach-Anaheim, CA | $706,714 | $2,618 | $2,390 | $31,416 | $28,680 |
| Chicago, IL | $246,357 | $913 | $833 | $10,956 | $9,996 |
| Dallas-Fort Worth, TX | $261,739 | $970 | $885 | $11,640 | $10,620 |
| Philadelphia, PA | $262,437 | $972 | $887 | $11,664 | $10,644 |
| Houston, TX | $222,936 | $826 | $754 | $9,912 | $9,048 |
| Washington, DC | $452,030 | $1,675 | $1,529 | $20,100 | $18,348 |
| Miami-Fort Lauderdale, FL | $310,471 | $1,150 | $1,050 | $13,800 | $12,600 |
| Atlanta, GA | $251,454 | $932 | $850 | $11,184 | $10,200 |
| Boston, MA | $514,321 | $1,906 | $1,739 | $22,872 | $20,868 |
| San Francisco, CA | $1,127,066 | $4,176 | $3,811 | $50,112 | $45,732 |
| Detroit, MI | $188,420 | $698 | $637 | $8,376 | $7,644 |
| Riverside, CA | $400,664 | $1,484 | $1,355 | $17,808 | $16,260 |
| Phoenix, AZ | $312,317 | $1,157 | $1,056 | $13,884 | $12,672 |
| Seattle, WA | $559,226 | $2,072 | $1,891 | $24,864 | $22,692 |
| Minneapolis-St Paul, MN | $305,202 | $1,131 | $1,032 | $13,572 | $12,384 |
| San Diego, CA | $643,903 | $2,386 | $2,177 | $28,632 | $26,124 |
| St. Louis, MO | $187,795 | $696 | $635 | $8,352 | $7,620 |
| Tampa, FL | $242,924 | $900 | $821 | $10,800 | $9,852 |
| Baltimore, MD | $302,464 | $1,121 | $1,023 | $13,452 | $12,276 |
| Denver, CO | $458,600 | $1,699 | $1,551 | $20,388 | $18,612 |
| Pittsburgh, PA | $167,172 | $619 | $565 | $7,428 | $6,780 |
| Portland, OR | $429,608 | $1,592 | $1,453 | $19,104 | $17,436 |
| Charlotte, NC | $249,960 | $926 | $845 | $11,112 | $10,140 |
| Sacramento, CA | $444,733 | $1,648 | $1,504 | $19,776 | $18,048 |
| San Antonio, TX | $211,964 | $785 | $717 | $9,420 | $8,604 |
| Orlando, FL | $266,005 | $986 | $899 | $11,832 | $10,788 |
| Cincinnati, OH | $197,135 | $730 | $667 | $8,760 | $8,004 |
| Cleveland, OH | $168,298 | $624 | $569 | $7,488 | $6,828 |
| Kansas City, MO | $214,639 | $795 | $726 | $9,540 | $8,712 |
| Las Vegas, NV | $302,071 | $1,119 | $1,021 | $13,428 | $12,252 |
| Columbus, OH | $222,467 | $824 | $752 | $9,888 | $9,024 |
| Indianapolis, IN | $192,677 | $714 | $652 | $8,568 | $7,824 |
| San Jose, CA | $1,224,366 | $4,536 | $4,140 | $54,432 | $49,680 |
| Austin, TX | $357,346 | $1,324 | $1,208 | $15,888 | $14,496 |
| Virginia Beach, VA | $252,041 | $934 | $852 | $11,208 | $10,224 |
| Nashville, TN | $289,792 | $1,074 | $980 | $12,888 | $11,760 |
| Providence, RI | $333,191 | $1,234 | $1,127 | $14,808 | $13,524 |
| Milwaukee, WI | $212,166 | $786 | $717 | $9,432 | $8,604 |
| Jacksonville, FL | $240,785 | $892 | $814 | $10,704 | $9,768 |
| Memphis, TN | $164,254 | $609 | $555 | $7,308 | $6,660 |
| Oklahoma City, OK | $165,014 | $611 | $558 | $7,332 | $6,696 |
| Louisville-Jefferson County, KY | $189,706 | $703 | $641 | $8,436 | $7,692 |
| Hartford, CT | $246,821 | $914 | $835 | $10,968 | $10,020 |
| Richmond, VA | $256,417 | $950 | $867 | $11,400 | $10,404 |
| New Orleans, LA | $215,218 | $797 | $728 | $9,564 | $8,736 |
| Buffalo, NY | $183,071 | $678 | $619 | $8,136 | $7,428 |
| Raleigh, NC | $292,160 | $1,082 | $988 | $12,984 | $11,856 |
| Birmingham, AL | $174,875 | $648 | $591 | $7,776 | $7,092 |
| Salt Lake City, UT | $405,189 | $1,501 | $1,370 | $18,012 | $16,440 |
The post Homeowners Could Save Thousands by Refinancing at Today's Ultra-Low Mortgage Rates appeared first on Zillow Research.
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