With mortgage rates at all-time lows, millions of homeowners have refinanced and even done so more than once—still a survey of about 1,000 borrowers showed 74% of those with pre-pandemic mortgages haven't refinanced, says Greg McBride, CFA, Bankrate, which conducted the study.
“Cutting the monthly mortgage payment by $150 or $250 [monthly], possibly more, can create valuable breathing room in the household budget at a time when so many other costs are on the rise,” he says.
So, what is keeping homeowners from refinancing, and are some demographics embracing the opportunity more than others, Bankrate asked 3,657 Americans (1,041 of whom hold mortgages)?
Among borrowers who haven’t refinanced, the most-cited reason was that they wouldn’t save enough money to warrant a refi—32% of respondents said so. (“[They] may want to rethink that,” McBride says. “Today’s rates are at levels unseen prior to last year.”).
Closing costs and fees are the second most-frequently cited objection. Fully 27% of respondents named that as an obstacle. "It’s true—closing costs can add up to thousands of dollars, typically 3-5% of the amount of the loan," Bankrate reported.
Investopedia also lists this among its "top-four reasons to not refinance."
Another common objection is that refinancing requires too much paperwork—cited by 23% of those who have yet to refinance.
Some 14 % of those who haven’t refinanced said they plan to move or pay off the loan soon.
"That’s a valid reason not to refinance because it can take years to pay off closing costs," McBride said, "so refinancing is best for homeowners who plan to keep their new mortgages for years."
And 12% of mortgagers said their credit scores were too low to refinance. That could be another credible reason not to refinance, McBride says. Most mortgage borrowers in 2021 have higher credit scores. On-time mortgage payments are one of the best ways to boost your credit score, so those paying their loans promptly should see an increased score, he added.
In today's market, millions of homeowners are in forbearance plans related to COVID-19 and its effects; Bankrate recently reported that, to qualify for a refi after forbearance, the borrowers must have made three consecutive payments on their loan, and they have to formally ask their mortgage servicer for a release from forbearance.
The Mortgage Banker's Association Associate VP, Housing Economics, Edward Seiler, recently cited refinancing as an option for struggling borrowers exiting forbearance. "For those still facing hardships once their forbearance plan expires, loan modifications, payment deferrals, and loan payoffs—through either refinancing or a home sale—are all options that could prevent a foreclosure."
Some other items of note from the study:
Some 38% of homeowners with a mortgage don’t know their interest rate, including 54% of millennials. Those who do know their mortgage rate reported a median rate of 3.57% and an average of 4.57%.
"Both of those levels are well above current rates, meaning homeowners can reap significant savings with a refi," Bankrate reports. In separate research, mortgage data firm Black Knight says 15 million American homeowners are in position to save by refinancing.
Refinance trends vary by generation and income, according to the Bankrate study.
About 28% of Americans aged 25 to 40 have refinanced, compared with just 17% of ages 41 to 56, and 17% of ages 57 to 75.
Baby boomers are more likely to feel refinancing wouldn’t save them enough money (37%, compared with 29% for Gen X and 21% for millennials). Gen Xers are most likely to point to fees and closing costs as an obstacle to refinancing (34%, compared to 27% of baby boomers, and 20% of millennials).
Homeowners with household income over $50,000 are nearly twice as likely to have refinanced compared with homeowners with household income of less than $50,000.
With home prices at all-time highs, so is home equity. Bankrate also asked homeowners with a mortgage what they view as good reasons to tap into their home equity—home improvements or repairs led the way, named by 60% of respondents. Debt consolidation, keeping up with regular household bills, paying tuition or other education expenses, and taking a vacation also made the list.