Over 2 million homeowners who thought they could not afford to refinance their mortgage – which can save them huge amounts of money over time but require a bit of cash up front – can now get a loan cheaper thanks to a new government option.
It is a program that will allow borrowers to refinance at current historically low mortgage rates and reduce their monthly housing costs by hundreds of dollars.
New option saves borrowers up to $ 3,000 per year
This summer, government-funded mortgage giants Fannie Mae and Freddie Mac will launch a refinance option offering reduced interest rates that could save financially disadvantaged borrowers up to $ 250 per month.
âLast year saw a spike in refinancing, but more than 2 million low-income families did not take advantage of historically low mortgage rates by financing,â says Mark Calabria, director of the Federal Housing Finance Agency , which regulates Fannie and Freddie.
To qualify, borrowers must have a federally guaranteed mortgage and earn no more than 80% of their area’s median income.
A lender will need to reduce an eligible borrower’s monthly mortgage payment by $ 50 or more and offer an interest rate reduction of at least half a point (0.5), say from 3.5% to 3 %.
âThis new refinancing option is designed to help eligible borrowers who have not yet refinanced save between $ 1,200 and $ 3,000 per year on their mortgage payment,â Calabria says in a report. Press release.
How the program reduces refinancing costs
Refinancing fees vary by state and lender, but it is not uncommon to pay 3% or more of the amount you owe your home in refinancing costs – âclosing costsâ.
If you qualify for the new FHFA program, your lender should provide up to $ 500 credit for an appraisal if you need it and waive the usual 0.5% fee for borrowers with a loan balance. equal to or less than $ 300,000.
But to be eligible, you must not have missed a payment in the past six months and not have missed more than one payment in the past 12 months.
In addition, you must meet specific requirements related to the quantity the debt you carry and how much equity you have in your home.
Finally, you can’t have a credit score below 620. If you don’t know if yours will make the cut, it’s easy to take a look at your credit score for free.
Millions more may benefit from refi, new study finds
If you don’t qualify for the government’s new refi option, you may still want to consider swapping your loan for a cheaper loan. Average 30-year fixed mortgage rates fell below 3% for the first time since late February.
Based on the lower interest rates of late, 13 million mortgage holders can still save an average of $ 283 per month by refinancing, according to Black Knight, a technology and data provider.
The best refi candidates have 30-year mortgages and at least 20% equity in their homes, the company says. They also have credit scores of at least 720.
If you are considering refinancing, check the mortgage rates of at least five lenders to make sure you are making the most of your savings.
To help you with your closing costs, you could generate additional income in the stock market, even if you are not rich. Popular app helps you build portfolio just by invest the “spare currency” of daily purchases.
If refinancing doesn’t work for you, there are other ways to save on housing costs. When it’s time to renew your home insurance, obtain quotes from several insurers to make sure you get the coverage you need at the best price.