Tom and Alex Moonitz are a young couple getting ready for a new baby in their lives, so they perked up when their mortgage broker called them about the possibility of refinancing their home.
“Being able to save any kind of money would be awesome for us and for our family,” Alex said.
Their lender had some unbelievable news for them: mortgage rates are plunging, and lenders are seeing a surge in refinance applications right now.
Breon Price of Motto Mortgage says rates are now at a 40-year low.
“We are seeing now sub-3% rates on 30 year fixed-rate mortgages,” he said.
As a broker who runs numbers at a half dozen different lenders, Price found the Moonitz’ a 30-year mortgage at just 2.5%, far below the 4% they had when they bought their home two years ago.
“I didn’t believe him,” Tom said. “I’ve owned a house for 10 years now, been a homeowner, and I’ve never even heard of 2.5%. I didn’t believe it initially.”
He says the reduced rate will save them about $120 a month.
“I’m not a math whiz, but the course of a 30-year loan, but that should save us upwards of $30,000,” he said.
Beware high closing costs
Mortgage brokers like Price, however, caution that the one thing to watch out for are high closing costs.
If it’s going to cost you $2,000 or more in closing costs, it could take two years of your new savings to make up that money.
“When you are looking to refinance and you are saving $115 a month, but it costs you $2,000 to do it, the savings may not be there,” Price said. “It’s going to take you a long time to recoup the cost of that refinance.”
But he says if you keep your costs low, for a $200,000 loan, a one-point drop in your rate can lower your payment $100 do a month. That’s real money.
So although the news from Wall Street and Washington may be pretty bleak right now, Tom and Alex Moonitz are pretty thrilled with the financial break they just received.
As always, don’t waste your money.