As the wave of refinances comes rolling in, it’s important to consider its effect on the economy as a whole. With lower interest rates being locked in across the country, household cash flow will be increased while supporting consumption. Investors, however, should tread carefully upon this new ground as refinancing and the Federal Reserve policy can each have a say in how volatile bond yields are.
Right now, mortgage rates for the 30-year mortgage is at 3.69%. As recent as November 2018, the mortgage rates were up to 5%. A direct consequence of this is the fact that U.S households now owe around $9.4 trillion dollars in mortgage debt, with half being conventional home loans. Refinancing is a result of this, and while many people won’t refinance, most probably will. The economic impact would be significant. According to Freddie Mac, households that had refinanced between April and June have already saved about $1,700 a year. To put this in perspective, the typical U.S homeowner spends $5,300 annually. Evercore (American Financial Services Company) estimates that the average borrower could potentially save $4,560 annually by refinancing into a rate at 3.5%. That’s an 86% discount on groceries every year, and it’s therefore a great idea to refinance your mortgage now.
