Coronavirus Effect: Millions of US Homeowners Can Save Thousands of Dollars a Year, But Don't Know About It
Surprisingly, many US residents paying a home loan do not know what their mortgage rate is, the material says. Fox Business. According to broker Steve Tsvetkov, this ignorance can cost them thousands of dollars of extra expenses per year.
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.
Among young borrowers, the level of ignorance is higher - about 34% of homeowners aged 29 to 39 do not know the interest rate on their mortgages. Among people aged 56 to 74 years, this figure is 23 percent.
“The point is that more than a quarter of mortgage borrowers do not know the interest rate that they pay on the current mortgage, losing potential benefits. Given the decline in mortgage rates that we are seeing, many homeowners could save 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 developed a very favorable situation for refinancing loans, which can help save millions of homeowners.
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 currently average 3,33%, according to Freddie Mac's weekly updated data. 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 savings on monthly installments.
“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 LendingTree study, on average, refinancing a loan helps a borrower save about $ 163 a month, or $ 1 a year, compared to those who do not resort to rate revision and refinancing.
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 their income and work during the coronavirus pandemic, therefore, lenders and government agencies offer several options to alleviate the financial burden on a person created by a mortgage.
A mortgage pause is when the lender allows the borrower to suspend or reduce mortgage payments for a limited period of time. But remember, a pause does not reduce your debt, and you will have to repay any missed or reduced payments in the future. Therefore, resorting to this option is only a last resort, because 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 when a lender takes a home because the landlord fails to make the necessary mortgage payments on time. This buyback process varies by state, and many regions have now imposed a temporary ban on such actions by lenders to protect borrowers affected by the crisis. Details for your specific region must be specified with a 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.
Your question to Steve Tsvetkov
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