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Chrisman's Corner: Refinancing Is an Option for Many Borrowers

JMAC’s brokers know that rates and price aren’t everything - service and experience count for a lot. But despite the low rate environment, our brokers report that many homeowners are not seeking out a refinance to take advantage of the low rate environment. Why not?

Reasons for the unenthused attitude towards refinancing may be due to that fact that people are unaware of their current rate or don’t have the drive to refinance.  A recent Bankrate survey found that only 65 percent of homeowners said they are very confident they know their rate, while 35 percent are only somewhat confident, not confident or don’t know their rate at all. In 2014, the rate on a 30-year fixed mortgage was about 4.25% and has dropped more this year, around 3.875%. This is in stark contrast from the 6% and higher interest rate environment seen in 2008. JMAC’s brokers also know that the MBA is predicting that rates will rise to about 5% by the end of the year as well. 
According to a publication by the National Bureau of Economic Research, (NBER) there’s always a fraction of the U.S. population that never takes advantage of a refinance, even it makes financial sense. According to NBER’s working paper “Failure to Refinance”, “In December 2010, approximately 20 percent of households that appeared unconstrained to refinance and were in a position in which refinancing would have been beneficial had failed to do so.” 
For example, refinancing a $200,000, 30-year fixed rate mortgage from 6.5 percent to 4.5 percent will save more than $80,000 on interest payments over the life of the loan. If this type of homeowner took advantage of long-term mortgage rates of 3.35 percent, they would save $130,000 from a refinance. This type of refinance could equate to hundreds of dollars in savings each month, by switching a $200,000 from a rate of 6 percent to 3.8 percent could mean saving $267 per month.
And with many of JMAC’s markets continuing to appreciate, and borrowers having more equity in their homes, it makes all the sense in the world for them to ask their broker about their situation.