Low Mortgage Rates: Why Are Minority Homeowners Not Refinancing?


With mortgage interest rates at an all-time low, it’s no surprise that millions of homeowners are rushing to refinance their loans. But a new report from Federal Reserve economists shows a surprising gap between white and minority borrowers who use savings.

A middle-aged man sitting on the couch is looking through documents.

From January 2020 to October 2020, only 6% of black homeowners refinanced, compared with nearly 12% of white homeowners, according to the data. reportwhich also revealed a significant racial gap in mortgage arrears during the pandemic.

Wharton real estate professor Benjamin Keys wants this gap closed.

“I always think of mortgage refinancing as the only financial solution that households leave a lot of money on the table after failing to take advantage of the benefits,” he said. “With all the personal financial advice you can get – cut back on Starbucks purchases or whatever – it’s just a drop in the bucket compared to fixing a long-term low mortgage rate for your home.”

Causes of racial inequality in refinancing are consistent with documented evidence from others housing inequality, Keys explains. Structural racism inherent in both public policy and the private sector has led to long-standing asymmetries in income, credit ratings, loan-to-value ratios, and other risk factors that prevent minorities from refinancing.

The coronavirus pandemic is exacerbating the problem, Keyes says, because black and Hispanic families are more likely to face the problem. job loss than white households. IN US unemployment rate in May it fell to 5.8%, while for Hispanics it was 7.3%, and for blacks – 9.1%.

“In part, it might just be a function of measuring income and disruption, but I think there is another factor related to how tough mortgages are now,” says Keyes. “Mortgage loans are perceived as very limited. Getting a loan can be difficult and there are many hurdles to overcome when refinancing. ”

Read more at Knowledge @ Wharton.

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