Many homeowners have not refinanced their mortgages since the coronavirus outbreak began, but with record interest rates they should reconsider their decision.
According to a recent report from Bankrate.com, less than 1 in 5, or about 19%, of homeowners who took out a mortgage before the pandemic have refinanced.
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Almost half, about 47%, with pre-pandemic mortgages have yet to consider refinancing, while more than a quarter, about 27%, have considered, but have yet to actually refinance. In addition, 7% do not know if they have refinanced their mortgage or not.
“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.com.
Of the top reasons homeowners gave as to why they haven’t refinanced, 32% think it won’t save them enough money, 27% say there are too many closing costs and high costs, and 23% say there is too much paperwork and hassle.
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Despite this, “reducing the monthly mortgage payment by $ 150 or $ 250, perhaps more, can create valuable wiggle room in the household budget at a time when so many other costs are on the rise,” he said. McBride said.
Other reasons were also mentioned: intention to move out or repay the loan soon, credit score problems, not being eligible due to unemployment or reduced income, owing more than the value of their house and, finally, not knowing the reason they didn’t refinance.
“The most cited reasons for not refinancing might not fit in this ultra-low rate environment,” McBride continued. “Reducing your payments without having to shell out funds by including the costs in the loan is one way to reduce the most important household expenses without compromising your savings account. “
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Therefore, homeowners are encouraged to consider refinancing if they haven’t already, especially with the current low interest rates, but this has become difficult, especially for homeowners who don’t even know their home. current interest rate.
The report found that 38% of homeowners, including 54% of millennials, with a mortgage, don’t know their current interest rate and, therefore, don’t know whether they could qualify for refinancing or not.
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About 46% of total borrowers, who have a rate of 3% or more, are likely good candidates to refinance at lower rates.
To determine if refinancing would be beneficial, Bankrate provides an example. For example, a loan of $ 300,000 over 30 years at 4% would cost $ 1,432 per month. If you refinanced at 3%, that would reduce the monthly cost to $ 1,265, reducing your monthly payment by $ 167 or your annual payment by $ 2,004.
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Interestingly, the report found that 21% of Millennials believe vacations and expensive non-essentials are good reasons to tap into their home equity. Compared to Gen X and Baby Boomers, Millennials are also more likely to view home equity as a way to meet household bills and make other investments.
Despite this, about 28% of millennials with pre-pandemic mortgages were refinanced during the pandemic, which was more than Gen Z and Baby Boomers, where only 17% of both generations.
Finally, the report showed that homeowners with an income level of $ 50,000 or more are also almost twice as likely to have refinanced than those with a household income of less than $ 50,000.