It’s a Good Time to Refinance in California: Summer 2020 Update

Key highlights from this report:

• With rates hovering at record lows, it’s a good time to refinance in California.
• Thirty-year mortgage rates recently dropped below 3%, for the first time ever.
• Many California homeowners can benefit from refinance their homes in 2020.
• Home values have also risen in the state, giving homeowners more equity.

In 50 years of record keeping, the average rate for a 30-year fixed mortgage loan had never dipped below 3%. So much for that “glass floor.” Last week, that average fell below 3% for the first time in history. This is based on the long-running weekly survey conducted by Freddie Mac. Here’s what you need to know about it.

2020: A Good Time to Refinance in California

As a result of this trend, the summer and fall of 2020 will be a good time to refinance for many California homeowners. In fact, these benefits could stretch through the end of 2020 and into 2021 as well.

Even homeowners who have refinanced within the past few years stand to benefit. If your current mortgage rate is closer to 4% than 3% — and you expect to remain in your property for the foreseeable future — now could be a great time to refinance your California home.

Economists from several organizations have commented on these trends. For instance, a recent report from Fannie Mae revealed that many homeowners in California and nationwide could benefit from refinancing their existing mortgage loans.

According to a July 14 statement from Doug Duncan, chief economist for Fannie Mae: “At the current mortgage rate, we estimate that nearly 60 percent of all outstanding loan balances have at least a half-percentage point incentive to refinance.”

‘Tappable’ Home Equity Rises to Record Level

In related news, homeowners in California and across the U.S. are now sitting on record levels of home equity. That’s due to a steady rise in home prices over the past few years.

Black Knight, a software and data company that serves the mortgage industry, recently reported that “tappable home equity” rose to a record level earlier this year. In this context, tappable refers to equity that homeowners could borrow against, while still leaving a 20% buffer intact.

And a large portion of people who are in that position have a mortgage rate well above the current average. So they’re ideal candidates for refinancing.

According to Black Knight’s most recent “Mortgage Monitor” report, published in early July 2020:

Tappable equity rose 8% annually in Q1 2020 to an all-time high of $6.5 trillion. With mortgage interest rates hitting record lows in recent weeks, 90% of homeowners with tappable equity now have first lien rates above the prevailing market average; more than 75% have rates above 3.5%.

Translation: For many homeowners in California, now could be a very good time to refinance an existing mortgage loan.

Home prices in the Golden State have risen over the past few years. The statewide median house value rose to a record level in June 2020, according to the California Association of REALTORS® (CAR). California’s median home price climbed to $626,170 in June, an increase of 6.5% from May and 2.5% from June 2019.

As CAR’s chief economist Leslie Appleton-Young explained: “A new record high in the statewide median price suggests that there is stronger housing demand from more qualified, affluent buyers in this extremely favorable lending environment.”

A Perfect Storm of Favorable Refinancing Trends

What we have here, essentially, is a kind of “perfect storm” for California homeowners who want to refinance their mortgage loans in 2020. A variety of factors have overlapped to create a favorable scenario for many homeowners across the state.

The two predominant factors are:

• Mortgage rates have dropped into record-low territory, and could fall even further as we progress through the second half of 2020.
• Home prices and equity levels have risen steadily over the past few years, putting more and more homeowners in a good position to refinance. “Tappable” equity is at record levels.

Given all of these trends, 2020 will be a good a time to refinance in California. At least, for a lot of homeowners. And it could get even better over the coming months, if interest rates continue to edge downward.

The big question is, could you benefit from refinancing in 2020? That depends on a couple of variables, including your current mortgage rate and your long-term plans.

If your primary goal is to save money over time, then you want to think long term. The idea is to keep the new mortgage loan long enough so that your accumulated savings surpass the amount you spend in closing costs. This is known as the break-even point. It’s the point at which the money you save (by locking in a lower rate) begins to exceed your refinancing costs.