There are several reasons for a borrower to refinance their home mortgage: to change the term (number of years) of the loan, or to take cash out to pay for college or medical bills. But the primary reason is usually to lower the interest rate, thus saving money every month. And at a time when mortgage rates are still low, JMAC’s brokers believe that a large majority would be taking advantage by refinancing their old mortgages.
But that doesn’t appear to be the case, according to a new National Housing Survey from Fannie Mae. The Survey showed that 46% of current borrowers had not refinanced. Of that 46%, seven percent tried to refinance in the past 2-3 years but were not successful in doing so. The other 39% never bothered. Additionally, only 25-30% said they refinanced during the past three years, a period where mortgage rates hovered at or near all-time lows. And 90% who obtained their most recent mortgage 3+ years ago said they were “not very likely” to refinance in the next 12 months.
There is a “dormant period” or “homeownership honeymoon” for the first six years when borrowers aren’t as likely to refinance. The majority that refinanced did so after owning their homes for six to 15 years, and then levels drop off again deeper into the loan term. Interestingly, “years in home” is the strongest indicator of past refinancing behavior, though you could just chalk that up to more time increasing the odds of borrowers taking action.
Fannie found that those who haven’t refinanced tend to be younger, own their homes for a shorter period of time, and have lower income/education levels. Respondents also indicated that refinancing wouldn’t “reduce payments enough,” or that closing costs were too high, and that they didn’t want to extend their loan term, aka reset the mortgage clock. Putting more money into an additional down more money was an issue (cured by the HARP loans), as were concerns about the process being too complicated, not trusting lenders, and the belief that they wouldn’t qualify for a refinance.
So JMAC’s brokers need to keep making those sales calls – there are still borrowers out there!