It’s no secret mortgage rates have been on sale for a while now…the problem is homes aren’t anymore.
Instead, they’re hitting new all-time highs in many regions of the country, and inching closer to their previous highs in plenty of other areas from coast to coast.
Overall, the national median sales price is still quite a bit lower than it was back in the mid-2000s when home values peaked. But for most folks, prices are still stretching wallets, even with those super low interest rates available.
In fact, thanks to massive home price gains in hot spots like Denver, Portland, and Seattle, the benefit of a low mortgage rate has essentially been wiped out, this according to a new analysis from Black Knight Financial Services.
You Might Be Saving Absolutely Nothing
The company noted that 30-year fixed mortgage rates have fallen about 35 basis points (0.35%) since the start of 2016, which would have saved the average borrower roughly $44 a month on their mortgage.
Instead, the monthly savings now stand at just $18 because of ongoing home price increases since the beginning of the year.
In Colorado, Oregon, and Washington, it may wind up costing the average home buyer more in the way of monthly payments to purchase the median-priced home than it did at the end of last year, despite the favorable mortgage rate environment.
It could be worse though…imagine if mortgage rates didn’t fall to start 2016, or if they increased like so many pundits predicted. One could argue that the low mortgage rates are becoming more necessity than gift.
Had rates stood pat this year, homeowners would be on the hook for another $28 a month in mortgage payment when buying a median-priced home.
While that might not seem like much, it’s not uncommon to see borrowers disqualified for a mortgage over a few bucks, not to mention the larger down payment required thanks to a higher purchase price.
The Low Rates Still Benefit Those Looking to Refi
There is some good news though. The lower mortgage rates have increased the refinanceable population to 7.5 million borrowers, defined as those with 30-year fixed mortgages who stand to benefit from a refinance at current interest rates.
Black Knight said this group has grown in size by some 2.3 million in just the past two months alone since it last ran the numbers.
Somewhat amazingly, nearly half (40%) of these refinance candidates took out their existing mortgages between 2009 and 2011.
The company added that this was during the downturn when few homeowners had sufficient equity to qualify for a standard refinance.
If that’s the case, and these borrowers now have 20% of more in equity, they could probably benefit considerably from a refinance (and they wouldn’t have to worry much about resetting the clock).
This short holding period is pretty common – most borrowers don’t hold their mortgages more than a few years, yet nearly all of them are opting to go with long-term fixed mortgages that carry higher rates relative to ARMs.
Black Knight said around one million borrowers have hit the crucial 20% equity threshold over the past 12 months, meaning they can refinance with ease LTV-wise and also avoid mortgage insurance if taking out a non-FHA loan.
Of course, over two-thirds of the total population met refinance eligibility requirements early last year as well and didn’t take advantage for one reason or another. So it’s hard to say if they will today.
By the way, if you’re wondering if there’s a correlation between home prices and mortgage rates, it’s not quite clear. One would assume they’d have an inverse relationship, but it’s yet to be proven.