The study found that 74% of homeowners did not refinance

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Many American homeowners are missing out on a great opportunity to lower their interest rates and cut their monthly payments by refinancing their loans, according to a new Bankrate study.

While the smartest homeowners have already refinanced – and some have even done it twice – millions have yet to take advantage of mortgage rates that once seemed incredibly low. According to the survey, 74% of homeowners with pre-pandemic mortgages did not refinance.

“The vast majority of mortgage borrowers have yet to refinance despite record low rates over the past year,” said Greg McBride, CFA, chief financial analyst at Bankrate. “Reducing monthly mortgage payments by $ 150 or $ 250, and possibly more, can create a valuable respite in the household budget at a time when so many other expenses are rising.”

Most Common Reasons Homeowners Say They Have Not Refinanced

Among homeowners who did not refinance, the most frequently cited reason was that they did not accumulate enough money to guarantee refinancing. This choice was mentioned by 32% of the respondents.

“You can rethink that,” McBride says. “Today’s rates are at levels not seen before last year.”

To illustrate one example, if you have a $ 300,000 30-year loan at 4% interest, your monthly payment would be $ 1,432. Refinancing to 3% will bring it down to $ 1,265, which means savings of $ 167 per month or $ 2004 per year. You can use the Bankrate Refinancing Calculator to see if refinancing will save you money.

Closing costs and fees are the second most common objection. 27% of respondents called this an obstacle. It’s true – closing costs can cost you thousands of dollars, usually 3 to 5 percent of the loan amount. However, if you can significantly lower your rate, you will recoup those closing costs.

Another common objection is that it takes too many paperwork to refinance, as indicated by 23% of those yet to refinance.

“Isn’t saving $ 30,000 over the next decade worth spending a few hours of your time?” McBride asks.

About 14% of those who did not refinance said they plan to move or pay off the loan in the near future. This is a good reason not to refinance because it can take years to pay off closings, so refinancing is best for homeowners who plan to keep their new mortgages for years.

And 12% said their credit ratings were too low to refinance. This could be another compelling reason for refusing to refinance – most mortgage borrowers will have higher credit ratings in 2021. Paying your mortgage on time is one of the best ways to improve your credit rating, so make sure you pay off your loan on time.

Whatever the reason for refusing to refinance, you should take a closer look at it, says McBride. “The most frequently cited reasons for refusing to refinance may not be supported in this ultra-low rate environment,” he says.

If you’re worried about spending money on closing costs, consider including those costs in your loan balance (known as a mortgage without closing costs), McBride says.

More than a third of homeowners don’t know their mortgage rate

About 38% of homeowners with mortgages don’t know their interest rate, including 54% of millennials. Those who know their mortgage rate reported an average rate of 3.57% and an average of 4.57%.

Both of these levels are well above current rates, which means that homeowners can reap significant savings through refinancing. In a separate study, mortgage company Black Knight reports that 15 million US homeowners can save through refinancing.

To find out your mortgage interest rate, simply check your monthly statement or contact your mortgage agent. If you are one of the homeowners who do not know their mortgage rate, getting an answer should be your first step. You need to know your current rate in order to understand if you will benefit from refinancing at current rates.

Refinancing trends vary by generation and income

About 28% of millennials (Americans aged 25 to 40) have refinanced, compared with 17% of Generation X (41 to 56) and 17% of baby boomers (57 to 75).

Baby boomers are more likely to believe refinancing won’t save them enough money (37% versus 29% for Gen X and 21% for millennials). Gen Xers are likely to point to fees and account closings as a barrier to refinancing (34% versus 27% of baby boomers and 20% of millennials).

Homeowners with a household income of more than $ 50,000 are almost twice as likely to be refinanced (24% have done so) compared to homeowners with a family income of less than $ 50,000 (just 13%).

Most Popular Reasons to Use Equity

Bankrate also asked homeowners with mortgages what they saw as good reasons for using their home equity. Housing improvements or renovations were the first, according to 60% of respondents, followed by debt consolidation, according to 44%. Homeowners can name several reasons.

Other reasons that are less frequently mentioned include regular household bills (19%), tuition or other education expenses (19%), other investments (16%), and recreation (7%).

How to refinance your mortgage

Step 1: Set a clear goal. You have a good reason to refinance. This could be a reduction in the monthly payment, a reduction in the term of a loan, or a divestiture to renovate a home or to pay off debt at a higher interest rate. You can also roll your HELOC into refi.

Step 2: Check your credit score. You will need to be eligible for refinancing in the same way that you needed to get approval for your original home loan. The higher your credit rating, the better refinancing rates lenders will offer you – and the higher your chances of underwriters approving your loan.

Step 3: Determine how much home equity you have. Your home equity is the value of your home in excess of what you owe your mortgage lender. To find out this figure, check your mortgage statement to see your current balance. Then check online home search sites or ask a real estate agent for an analysis to determine the current assessed value of your home. Your net worth is the difference between the two. For example, if you owe $ 250,000 for your home and the cost is $ 325,000, your net worth is $ 75,000.

Step 4: Buy from multiple mortgage lenders. Getting quotes from multiple mortgage lenders can save you thousands. Once you’ve chosen a lender, discuss when is the best time to lock in your rate so you don’t have to worry about raising rates until the loan is closed.

Step 5: Get your documents in order. Gather recent payrolls, federal tax returns, bank statements, and whatever else your mortgage lender asks for. Your lender will also keep track of your credit and net worth, so disclose your assets and liabilities ahead of time.

Methodology

Bankrate.com commissioned YouGov Plc to conduct a survey. All figures, unless otherwise stated, are provided by YouGov Plc. The total sample size was 3,657 adults, including 1,041 with a mortgage. Fieldwork was conducted on July 26-29, 2021. The survey was conducted online and meets strict quality standards. He used non-probabilistic sampling, using both quotas in advance at collection time, and then an inside weighting scheme designed and proven to provide representative results at the national level.

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