Fear over European debt defaults helped pushed mortgage rates to their lowest levels since December according to the Freddie Mac PMMS Index as 30-year fixed rates fell to 4.84%. Fifteen year fixed rates dropped to 4.24%, their lowest level since that index began tracking in 1991.
At these levels, borrowers might consider refinancing from an existing ARM or long term fixed rate mortgage to a 15-year fixed rate loan which will not only shave years off their mortgage, but save thousands of dollars in interest. As an example, a homeowner who refinances a $200,000 30-year fixed rate mortgage at 5.25% to a 15-year fixed rate loan, will save $126,766 in interest over the life of the loan. The borrower’s mortgage payment would increase by $400 per month to $1,504.56 in principal and interest.
Currently, almost 50% of Americans have mortgages with an interest rate of 5.7% or higher. Those borrowers would reap even greater savings from a mortgage refinance. Refinancing from a 30-year fixed rate at 5.75% to 4.75% would generate a monthly payment savings of more than $100 per month and a total interest savings of more than $44,000 over the life of the loan.
Homeowners and homebuyers have been afforded a unique opportunity to finance at lower rates. Conventional wisdom had rates rising over the course of the year as Federal mortgage rate subsidies ended and the economy began to recover. The unexpected financial crisis in emerging European economies has led to a domino effect, bringing investors back to a dollar as a safe haven. While this is welcome news, it certainly won’t last forever.
