Should San Francisco homeowners refinance their mortgage?

Mortgage refinance rates are on a downward trend with the shadow of COVID-19 looming over the U.S. economy.

Realty group Keller Williamsestimates an average 30-year fixed mortgage rate at 3.28percent in San Francisco, with the average 15-year mortgage rate standing at 2.7 percentat time of reporting. For Bay area homeowners, the monthly savings gained from moving from 4.5 percent to 3.5 percent could save them hundreds of dollars per month in home payments, depending on the size of the mortgage.

Major mortgage lenders are in agreement that mortgage rates will continue to slide to historically low levels. Wells Fargo estimates a 2.93 percent rate for 30-year fixed mortgages by the end of 2020. Fannie Mae isn’t far behind, calling for an average rate of 3.05 percent for the last half of the year.

Mortgage lending professionals say it’s a great time to refinance a mortgage. However, homeowners looking to refinance right now should still do their homework to ensure they find the lowest possible rates. Major online rate comparison platform Credible can help you compare multiple mortgage lenders at once and see what kind of rates you qualify for within just minutes.

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“For the last five weeks mortgage rates have fallen to historic lows, primarily due to changing Federal Reserve rate policy,” said Rhian Horgan, chief executive officer at New York-based Kinder, a financial technology company and a former executive at JP Morgan. “Rate activity has been driven by the Fed lowering rates by 1.5 percent in March, to a target rate of 0-to-.25 percent. Just last week the average 30-year mortgage was 3.26 percent and the average 15-year mortgage was 2.73 percent."Those rate levels are easily one percentage point lower than a year ago. “Consequently, mortgage holders can gain over $100,000 in savings on a $500,000 30-year mortgage,” Horgan said.

Kinder is currently partnering with Credible to help financial consumers shop for the best rates. “For homeowners, especially soon to be retirees, adding these savings can be incredibly powerful,” she added.

Should you refinance your mortgage when interest rates drop?

Homeowners looking to refinance right now are in an interest rate “sweet spot," where opportunities for savings are abundant. You can answer a few basic questions on Credible's site to find personalized rates within minutes.

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“The pandemic’s effect on consumer confidence and the economy is causing the Fed to lower rates to an all-time low in order to keep our economy afloat,” said Nicholas Bond, founder of Renovation 320, a real estate property management company in Orlando, Fla. “When the Federal Reserve lowers its benchmark federal fund rate, it allows banks to borrow money at cheaper rates and thus passes this lower rate down to the consumer through cheaper home loans.”

Bond is currently handling his own mortgage refinance deal and, so far, he likes what he sees.

“I’m locked in at 3.375 percent for a 30-year fixed-rate mortgage,” he said. “I also was told I could receive a 2.85 percent interest rate for a 15-year fixed mortgage.”

Good rate deals seem like low-hanging fruit right now, but Bond advises consumers looking to refinance not to drag their heels. “Volatility we’re seeing in the financial markets has made rates unpredictable,” he said. “One day I could lock in at 3.25 percent and the next day the rate was back up to 4 percent.”

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“These are the lowest rates of all-time and anyone who owns real estate should be considering refinancing their existing debt,” he added.

Is now the best time to refinance your mortgage? 

While historically low interest rates make it a great time to refinance right now, it’s a good idea to take a look at the big picture before signing on the dotted line.

“Yes, it makes sense to refinance your mortgage when substantial financial savings are in play,” said Shea Adair, a real estate broker with eXp Realty in Apex, N.C. “There is a financial cost to refinancing, so that needs to be taken into account.”

By and large, if the available loan interest rate is being reduced by at least one percent go ahead and refinance, Adair said. Shopping around for the lowest interest rates can get you the best deal and help mitigate refinancing closing costs. Credible's online tools can help you compare lenders without any impact on your credit score. 

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“For instance; if your current interest rate is 3.875 percent and you obtain an interest rate of 2.75 percentage, that’s a savings of approximately $150 per month,” he said. “Once you have that figure locked in, determine how long you plan on staying in the property,” he said. “If you’re expecting to stay no more than five years, then multiply $150 per month, times 60 months, which equals $9,000.”

The longer you stay in the home, the more savings you’ll stack up when refinancing, he added.

Adair cautions that closing costs should be factored into the decision to refinance, as well. Mortgage industry data notes that the average refinancing closing costs range between two percent and five percent of the entire home loan.

What credit score is needed for refinancing your mortgage?

Before you start applying for a new mortgage loan, make sure your credit score is in good health.

“Your credit score plays a major role in determining what interest rate you will qualify for when refinancing or acquiring a new mortgage,” said Dwain Phelps, founder of Phelps Financial Group in Kennesaw, Georgia. “Typically, higher credit scores will get lower interest rates.”

That’s good news for San Francisco homeowners looking to refinance, as the median credit score in the Bay Area is 745, according to TransUnion.

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Phelps rates strong credit ranges as follows: A FICO credit score between 670 and 739 as good, with a score range of 740 - 799 as “very good.” "Exceptional" credit scores are any over 800.

“I always recommend to my clients to evaluate and work to improve their credit score before applying for mortgages,” Phelps adds. “Your credit score will not be the only factor in determining approval for a mortgage, but it's certainly a key ingredient.”