Americans are saving hundreds, even thousands, of dollars by refinancing their homes. That’s partially because the Federal Reserve dropped interest rates to a historic low this week in an effort to jump start the housing market.
If you’re paying lower interest rates, you may be able to pay less each month or pay off your house sooner.
"We bought it in May at 6 and 3/8," says Dianna Nauman from Elkhart. She and her husband refinanced Wednesday to 4.62%. "This will save us $200 a month in just mortgage on the new house. And over the lifetime of the 30 year loan it will be $82,000.
"It's staggering. It's absolutely staggering," exclaims Maribeth Roncz, First Federal Savings Bank. "I closed loans three months ago at 6.5 and you're talking under five, in a matter of months. That's incredible."
Banks and mortgage brokers have mailboxes and inboxes full of clients calling and clicking to find out if they can save money.
"You can drop 7/8ths of a percent and if the cost to do it isn't high, you can recover that cost in less than a year," Roncz explains.
Here’s another example. Let’s say you owe $100,000 on your mortgage and you’re currently paying 6.5% interest. As of Thursday morning, rates were 5.25%. That would save you $80 a month.
"The mortgage rates are going to be very volatile. They can change on a daily basis and days like yesterday they can change three or four times throughout the day," explains Alan Butt, mortgage broker for Allied Banc.
Banc reminds you to also remember there will be closing costs and fees. Those can range, but on average, about $1,800. Back to our original example, if you’re saving $80 a month, you would break even after 22.5 months.
"This is a much needed stimulus which is a once in a life time opportunity for just about all of us," Butt says.
But, not exactly “all of us” may qualify. During these economic times, banks are becoming more stringent on who they loan to. While back in the day, everyone got the same interest rate, people with very good credit may find themselves in a better position.
So how long will interest rates stay this low?
The answer: wait and see.