Coronavirus Effect: Millions of US Homeowners Can Save Thousands of Dollars a Year, But Don't Know About It

Surprisingly, many people who pay off a home loan in the United States do not know what their mortgage rate is, the article notes. Fox Business. According to broker Steve Tsvetkov, this ignorance can cost them thousands of dollars of extra expenses per year.

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According to a February study by the Bankrate portal, about 27% (or more than a quarter) of homeowners in the United States do not know the interest rate paid on their current mortgage agreement.

Lack of knowledge is higher among younger borrowers—about 34% of homeowners aged 29 to 39 don't know the interest rate on their mortgage. Among people aged 56 to 74, the figure is 23 percent.

“The point is that more than a quarter of mortgage borrowers do not know the interest rate they pay on their existing mortgage, losing out on potential benefits. Given the decline in mortgage rates we are seeing, many homeowners could save money by refinancing their loans,” said Mark Hamrick, senior economic analyst at Bankrate.

Ignorance of the mortgage rate can be a costly mistake, because even the smallest percentage in this indicator can result in tens of thousands of dollars of overpayment. This is especially important for those who have adjustable mortgage rates that can rise and fall.

“Refinancing a loan is a process in which a client can take a new loan (most often with another bank), and with it, repay the previous one ahead of schedule, and then start paying a new one, on more favorable terms. As a result, loan payments can be reduced by hundreds of dollars per month, and the new bank will cover almost all expenses for closing the previous loan, ”explained Californian loan broker Steve Tsvetkov.

According to him, now the country has a very favorable situation for refinancing loans, which gives a chance to save millions of homeowners.

Photo from the personal archive of Steve Tsvetkov

Why is now the best time to refinance a mortgage

Due to coronavirus in the USA the economic crisis began. However, experts predict that it will not be long. Moreover, he lowered interest rates on the mortgage market, which is extremely beneficial for borrowers and provides ample opportunities for refinancing and saving.

A favorable position for refinancing in this situation is that you have a 30-year mortgage with a rate of more than 4%, most of the US residents now have these types of housing loans.

Mortgage rates are currently averaging 3,33%, according to Freddie Mac data updated weekly. A year ago this figure was 4,08%. 3,33% is the average value, while some refinancing transactions could be closed at the end of March at a rate of 2,75%, and this is a significant saving on monthly fees.

“As a rule, when refinancing, savings in interest payments can reach a quarter of the previous rate, and this is very noticeable when making monthly payments. However, most banks do not introduce penalties for early repayment of a loan. As a rule, in most cases, the minimum period during which you are required to pay a loan and interest is six months. After this time, you can repay the loan ahead of schedule by paying the entire loan amount. At the same time, you should pay interest only for the period during which you used the loan. In the case of refinancing, you absolutely do not need to look for money to cover the previous loan yourself - usually a new bank will cover these costs, ”explained Steve.

How much can you save?

According to a recent study by LendingTree, on average, refinancing a loan helps a borrower save about $ 163 per month, or $ 1 per year.

The savings can be truly stunning in high-priced housing markets. For example, sSan Francisco lenders, refusing to refinance, will pay an average of $ 66 more for the house in the form of additional interest over the life of the mortgage.

California is the most profitable state for refinancing mortgages, where the savings will be most tangible.

Money saved on reducing monthly payments can be used more rationally. For example, postpone them to retire or replenish your fund in case of emergency.

What to do if there is no money to pay a loan at all

Many lost income and jobs during the coronavirus pandemic, so lenders and government agencies offer several options to ease the financial burden created by mortgages.

Mortgage forbearance

A mortgage forbearance is when a lender allows a borrower to pause or reduce mortgage payments for a limited period of time. But remember, the pause does not reduce your debt and you will have to make up any missed or reduced payments in the future. Therefore, you should only resort to this option as a last resort, otherwise you risk accumulating even more debt.

Depending on the type of loan that you have, there are various options for pausing a loan; you need to consult with a broker to evaluate your options specifically.

A moratorium on the eviction of borrowers and the sale of property by the lender (Foreclosure)

Foreclosure is the process where a lender takes possession of a home because the homeowner fails to make required mortgage payments on time. This foreclosure process varies by state, and many states have now temporarily banned lenders from doing so to protect distressed borrowers. Details for your specific region should be clarified with your broker.

But, again, it is worth using this moratorium only in the most extreme case, because with the expiration of the restrictions imposed by state agencies, the debt will not go anywhere.

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