Survey reveals why so many homeowners haven’t refinanced their mortgage

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Record-low mortgage rates have led to a refinancing boom unlike any other in American history, but according to new Bankrate data, a surprising number of homeowners are missing out on the opportunity to save. More than a quarter of current mortgage holders (27 percent) don’t even know their current rate, putting themselves in a poor position to determine if it’s worth it to refinance.

“Millions of homeowners could be missing out on tens of thousands of dollars in savings by not refinancing their mortgages at this year’s record low rates,” says Greg McBride, Bankrate chief financial analyst. “Roughly 8 in 10 homeowners with a mortgage have not refinanced and more than 1-in-4 doesn’t even know what rate they’re paying.”

The nationwide survey showed that 17 percent of mortgage borrowers say they have refinanced this year, an additional 27 percent have considered refinancing but haven’t done so, and 52 percent have not considered refinancing. This means that despite the ongoing record low mortgage rates, 80 percent of mortgage borrowers have not refinanced. To be sure, some of these homeowners aren’t eligible for refinancing or have other compelling reasons not to refinance.

Key takeaways:

Why homeowners haven’t refinanced their mortgage

Homeowners cited a number of reasons for choosing not to refinance. Here are the main ones.  Advice on how to address these obstacles follows below.

  • It wouldn’t save me enough money (33 percent)
  • Closing costs and fees that are too high (23 percent)
  • Too much paperwork and hassle (22 percent)
  • Plans to move or pay off the loan soon (14 percent)
  • Low credit score (10 percent)
  • Unemployment or reduced income that would prevent qualifying (6 percent)

Millennials were more likely than baby boomers and Gen X-ers to cite closing costs and fees or paperwork as their major barriers. Homeowners could cite multiple reasons for not refinancing, and 17 percent chose reasons other than those listed above.

Although higher-income households are more typically likely to have better rates on their existing mortgages, they were also more likely to want to refinance: 49 percent of households earning more than $50,000 responded that they considered refinancing, compared with just 37 percent of those earning less than $50,000.

As earnings went up, middling savings on their mortgage payment became a bigger deterrent to refinancing. Higher-income households that didn’t refinance were more likely to say it wouldn’t save them enough money (39 percent of those earning $80,000 or more and 33 percent of those earning $50,000-$79,999) than households with income below $50,000 annually (52 percent).

Households with annual income below $50,000 were more likely to cite a low credit score (32 percent) as a reason for not refinancing than homeowners with income of $50,000-$79,999 (13 percent) and $80,000 or higher (7 percent).

Millennials most likely to refinance

Although the homeownership rate for millennials is lower than that of older generations, millennials who do own homes were more likely to refinance their mortgages this year than baby boomers or Gen X-ers.

According to Bankrate’s survey, 21 percent of millennial homeowners refinanced their mortgages this year, compared with 16 percent of Gen X-ers and just 14 percent of baby boomers. The discrepancy may be partly due to the fact that boomers are most likely nearer to the end of their mortgage terms.

Many boomers have probably paid their mortgages down to the point where the savings from a refi can’t be recouped versus the expenses within a reasonable period of time. And some of them plan to downsize soon enough that it wouldn’t make sense to take on a new mortgage now.

Regardless of their age, lower-income borrowers generally reported a higher median mortgage rate, with households earning less than $30,000 annually reporting a median rate of 4.5 percent and households earning $30,000-$49,999 annually a median of 4.09 percent, compared to 3.81 percent for households with annual income of $50,000-$79,999 and 3.63 percent for households with annual income of $80,000 or more.

These rates are high compared with the 3.12 percent average for the 30-year fixed-rate mortgage in Bankrate’s latest weekly survey. Keep this average in mind if you’re thinking about refinancing, so you can understand what a reasonable loan offer is based on your personal financial situation.

Adverse market refi fee rankles homeowners

A quick recap: Most conforming mortgage refinances valued at $125,000 or more will be assessed a 0.5 percent fee if they close on or after Dec. 1, thanks to a new Federal Housing Finance Agency (FHFA) rule. Lenders have already started pricing this cost into their loan offers.

A majority of respondents said the fee was deterring them from pursuing a new mortgage. More than half of baby boomer and Gen X homeowners said the fee was a significant factor in their decision to not refinance. Millennials were less likely than older homeowners to be turned off by the FHFA fee.

While it’s true that the fee will make refinancing more expensive overall, many homeowners still stand to see significant savings even after it comes into effect, because that 0.5 percent is being added to interest rates that are otherwise historically low.

How to join the refi boom and save money each month

If you find yourself facing any of the barriers to refinancing above, here are some tips for how to address them.

  • Developing good saving habits early and sticking to them is crucial. Lenders want to make sure you can afford your new mortgage just as they did with the loan to buy your property in the first place. Even if a refinance will mean savings down the road, it’s important to apply from a strong financial position, too. Consider seeing if you can get gift money to boost your bank balance and bolster your refinance application.
  • Many lenders now offer no-cost closings. Ultimately, the financial institution recoups its costs through slightly higher interest rates or rolling the fees into the balance of your loan. If your only barrier to refinancing is not having enough money to close, it’s worth exploring these alternatives. You may still wind up saving more money than you would if you kept your original mortgage, even after you factor in all the rolled-in costs of the new loan.
  • Refinancing a mortgage is a pain, but being intimidated by all the paperwork is not a good reason to be giving banks more money than you have to each month. Things will go more smoothly if you get all your financial documents in order as soon as possible, so start compiling things like tax returns, pay stubs, W-2s, current mortgage statements and bank statements as soon as you’re ready to apply to refinance. It won’t save you any work, but it will save you the stress of having to get those documents together on short notice.
  • Borrowers with low credit should look into government-backed programs. It may be more difficult and more expensive to refinance than it would be if your credit score were higher, but if you took out your existing mortgage with a similar financial profile, you may still see some savings thanks to low interest rates across the board. Also check out our tips for ways to improve your credit score. Mortgage rates are likely to stay low for a while, so you may be able to boost your score and try again for a refi down the road.
  • If you recently had a change in your employment status or compensation, you may be better off looking into forbearance options rather than refinancing. If you’re struggling to make your mortgage payments, you may be able to get permission from your lender to take a pause without affecting your credit score, and you may still be able to refinance when things improve in the future.

Bottom line

Millions of homeowners have not seriously considered refinancing, even though they could possibly save money if they did.

If you have a mortgage with an interest rate of 4 percent or more, which about a third of mortgage holders do, you should almost certainly refinance soon. Even if your mortgage rate is between 3 and 3.99 percent (29 percent of mortgage holders based on the survey), it’s probably worth at least getting quotes for a refi, because current interest rates are below 3 percent on average, before factoring in fees and points.

“Don’t let the upfront costs of refinancing cause you to dismiss the idea altogether,” McBride said. “The $3,000 in costs incurred today could save you $15,000 over the next decade and $30,000 over the life of the loan. You may even be able to roll the costs into your new, lower rate balance.”

Methodology: commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 4,199 adults, of whom 1,330 were homeowners with a mortgage. Fieldwork was undertaken between October 19th- October 22nd, 2020. The survey was carried out online and meets rigorous quality standards. It employed a non-probability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results.

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Written by
Zach Wichter
Mortgage reporter
Zach Wichter is a mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy.
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