Survey finds 74% of homeowners haven’t refinanced

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

While the smartest homeowners have already refinanced – and some have even refinanced twice – millions of others have yet to take advantage of mortgage rates that once would have seemed insanely low. Of homeowners with a mortgage they had since before the pandemic, 74% have not refinanced, according to the survey.

“The overwhelming majority of mortgage borrowers have yet to refinance, despite record rates over the past year,” said Greg McBride, CFA, chief financial analyst at Bankrate. “Reducing the monthly mortgage payment by $ 150 or $ 250, maybe more, can create a precious respite in the household budget at a time when so many other costs are on the rise.”

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% 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’s refinance calculator to see if refinancing will save you money.

Closing costs and fees are the second most frequently cited objection. At least 27% 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% 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 improve 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’re worried about tapping into cash to pay for closing costs, consider rolling those costs onto the loan balance (called a mortgage with no closing costs), McBride says.

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.

Keeping track of 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 (25- to 40-year-old Americans) 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 saw as good reasons to tap into their home equity. Home renovations or repairs lead the way, cited by 60% of respondents, followed by debt consolidation, cited by 44%. Homeowners can cite more than one reason.

Other reasons cited less frequently included: facing regular household bills (19%), paying for tuition or other education-related expenses (19%), other investments (16%) and making holidays (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 the term of your loan, or withdrawing equity for home repairs or to pay off higher interest rate debt. You may also want to roll your HELOC into a refi.

2nd step: 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 perform a scan to find your home’s current estimated value. 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. Getting quotes from multiple mortgage lenders can save you thousands of dollars. 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 investigate. 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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