74% of homeowners haven’t refinanced despite record mortgage rates: survey

Many American homeowners are missing out on a great opportunity to lower their interest rates and cut their monthly payments by refinance their loans, according to a new Bankrate survey.

By the end of July, only 19% of people with pre-pandemic mortgages had refinanced since the start of the Covid-19 epidemic. Meanwhile, nearly half (47%) hadn’t even considered refinancing. Of those who had not refinanced, almost a quarter (23%) said it was because they thought it was too much paperwork or hassle.

While Savvy Homeowners Have Refinanced – And Some Have twice – millions more have not yet taken advantage of mortgage rates which once would have looked incredibly low. Of homeowners with a mortgage they had before the pandemic, 74% have not refinanced, according to the survey.

“The overwhelming majority of mortgage borrowers have not yet refinanced, despite record rate over the past yearSays Greg McBride, CFA, chief financial analyst at Bankrate. “Reducing the monthly mortgage payment by $ 150 or $ 250, perhaps more, can create valuable leeway in the domestic budget at a time when so many other costs are on the rise.

Main conclusions

Bankrate commissioned YouGov Plc to conduct the survey, which consisted of a total sample of 3,657 adults, 1,041 of whom had a mortgage. Fieldwork was undertaken from July 26-29, 2021.

The most common reasons homeowners say they haven’t refinanced

Among homeowners who didn’t refinance, the most cited reason was that they wouldn’t save enough money to justify a refi. This choice was cited by 32 percent of respondents.

“You might want to rethink this,” McBride says. “The rates today are at levels not seen before last year.”

To illustrate an example, if you have a 30-year loan of $ 300,000 at 4%, your monthly payment is $ 1,432. A 3% refinance would reduce it to $ 1,265, a savings of $ 167 per month or $ 2,004 per year. You can use Bankrate refinancing calculator to see if refinancing will save you money.

Closing costs and fees are the second most frequently cited objection. Fully 27 percent of respondents cited this as a barrier. That’s right, closing costs can cost you thousands of dollars, typically 3-5% of the loan amount. However, if you can reduce your rate significantly, you will recoup those closing costs.

Another common objection is that refinancing requires too much paperwork, a barrier cited by 23 percent of those who have not yet refinanced.

“Isn’t it worth spending a few hours of your time saving $ 30,000 over the next decade?” McBride asks.

Some 14% of those who did not refinance said they plan to move or pay off the loan soon. This is a valid reason not to refinance, as it can take years to pay off closing costs. Refinancing is therefore preferable for homeowners who plan to hold on to their new mortgage for years to come.

And 12% said their credit scores were too low to refinance. This could be another credible reason not to refinance – most mortgage borrowers in 2021 have higher credit scores. On-time mortgage payments are one of the best ways to increase your credit score, so make sure you pay off your loan quickly.

Whatever the reason you’re not refinancing, you should take a closer look, says McBride. “The most cited reasons for not refinancing might not fit in this ultra-low rate environment,” he says.

If you are worried about dipping into cash to pay closing costs, consider carrying those costs against the loan balance (called mortgage with no closing costs), says McBride.

More than a third of homeowners don’t know their mortgage rate

Some 38% of homeowners with a mortgage don’t know their interest rate, including 54% of millennials. Those who know their mortgage rate reported a median rate of 3.57% and an average of 4.57%.

Both of these levels are well above current rates, meaning homeowners can make significant savings with a refi. In separate research, mortgage data firm Black Knight says 15 million U.S. homeowners are able to save money by refinancing.

Track your mortgage rate should be a simple matter of checking your monthly statement or contacting your mortgage agent. If you’re one of the homeowners who doesn’t know your mortgage rate, getting the answer should be your first step. You will need to know your current rate to know if you will qualify for refinancing at current rates.

Refinancing trends vary by generation and income

Some 28% of millennials (Americans aged 25 to 40) have refinanced, compared with just 17% of Gen X (41 to 56) and 17% of baby boomers (57 to 75).

Baby boomers are more likely to think refinancing wouldn’t save them enough money (37%, compared to Gen X 29% and Gen Y 21%). Gen Xers are most likely to point to fees and closing costs as a barrier to refinancing (34%, vs. 27% of baby boomers and 20% of millennials).

Homeowners with household income over $ 50,000 are almost twice as likely to have refinanced (24% have done so) than homeowners with household income below $ 50,000 (only 13%) .

The Most Popular Reasons To Tap Home Equity

Bankrate also asked homeowners with mortgages what they considered to be good reasons for tap into their home equity. Home improvements or repairs led the way, nominated by 60 percent of respondents, followed by debt consolidation, cited by 44 percent. Homeowners can cite more than one reason.

Other reasons cited less frequently include: paying regular household bills (19%), paying school fees or other education expenses (19%), other investments (16%), and taking vacations (7%).

How to refinance your mortgage

  • Step 1: Set a clear goal. Have a compelling reason to refinance. This could be lowering your monthly payments, shortening your loan term, or withdrawing equity for home repairs or to pay off higher interest rate debt. You may also want roll your HELOC in a refi.
  • Step 2: Check your credit score. You will need to qualify for refinancing just like you would need to get approved for your original home loan. The higher your credit score, the better the refinancing rates lenders will offer you, and the better your chances of underwriters to approve your loan.
  • Step 3: Determine the equity in your home. The equity in your home is the value of your home that is more than what you owe your mortgage lender. To find this number, check your mortgage statement to see your current balance. Then check out online home search sites or have a real estate agent run a scan to find the estimated value of your home. The equity in your home is the difference between the two. For example, if you owe $ 250,000 on your home and it is worth $ 325,000, your home equity is $ 75,000.
  • Step 4: Shop around for several mortgage lenders. Get quotes from several mortgage lenders can save you thousands. Once you’ve chosen a lender, discuss the best time to lock in your rate so you don’t have to worry about the rate going up before your loan closes.
  • Step 5: Put your papers in order. Gather recent pay stubs, federal income tax returns, bank statements, and whatever else your mortgage lender asks for. Your lender will also look at your credit and equity, so disclose your assets and liabilities up front.

Methodology

Bankrate.com commissioned YouGov Plc to conduct the investigation. All figures, unless otherwise stated, are from YouGov Plc. The total sample size was 3,657 adults, 1,041 of whom had a mortgage. Fieldwork was undertaken from July 26-29, 2021. The survey was conducted online and meets rigorous quality standards. It used a non-probability sample using both upstream quotas during collection and then a downstream weighting scheme designed and proven to provide nationally representative results.


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Kayleen C. Rice

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