How Much Did You Save on Your Refinance?

According to a new survey from secondary mortgage market lender Freddie Mac, half of all borrowers who refinanced in the first quarter of 2009 lowered their annual mortgage interest rate by 20 percent.

On an individual basis, homeowners who took advantage of the lowest interest rates in 50 years (mortgage interest rates averaged about 5 percent in Q1 of this year) saved an average of $160 per month. In big numbers, these homeowners will save a total of $2.5 billion in mortgage payments in the first year after refinancing.

As Frank Nothaft, Freddie Mac's chief economist, pointed out in a press release, if the interest rates stay at 5 percent, and the rate of refinancing holds up, homeowners will save about $10 billion collectively in the first year after refinancing.

Amy Crews Cutts, Freddie Mac's deputy chief economist, noted in the same release that the number of cash-out refinancings, as well as the amount taken out, had dropped noticeably from the past few quarters. The report found that 58 percent of homeowners refinanced for the same or a reduced principal balance. The share of cash-out refinancings (even to consolidate other debt) fell to a 5-year low, although $11.7 billion in home equity loans and lines of credit was consolidated into new first mortgages. That'll save homeowners another $200 million per year in interest.

That's a fair amount of moolah. The question is, will it be enough to help jump start the economy? Maybe eventually. The biggest problem is that closing costs have jumped to some of the highest amounts I've seen in the 20 years I've been writing about real estate. Banks are padding their profits, which means that a big chunk of the first few years of "savings" will be used to pay off closing costs.

I'm hearing about this from my readers and radio talk show listeners: some are being charged so much it'll take more than 80 months of savings to pay off the costs of their refinance. That's seven years.

Do we really want to wait seven years to see the savings trickle down into an economic boost? I'd like to see the federal government "suggest" to banks that they lower some of these huge costs of refinance.

How much are you saving on your refinance?