Homeowners may be missing out on the chance to save up to thousands of dollars a year through refinancing, a new Bankrate survey found. Only 19% of homeowners reported refinancing mortgages that they obtained prior to the pandemic since the beginning of the outbreak, according to the report.
Forty-seven percent of homeowners reported not considering refinancing their mortgages, a surprising finding considering record-low interest rates in the US.
Average mortgage rates have been rising slightly since hitting all-time lows last year, though they still remain well below previous years’ averages. As such, refinancing rates have been abnormally cheap; some mortgages have refinancing rates below 3% or even 2%.
“Thirty-eight percent of homeowners with a mortgage do not know their current interest rate,” the survey found, “making it impossible for them to know if they could benefit from refinancing.”
Homeowners who do not devote the time and effort into discovering their interest rates may be missing out on a valuable money-saving opportunity, the Bankrate report noted.
“I think it’s sort of out of sight, out of mind,” said Bankrate.com chief financial analyst Greg McBride in a recent interview with Yahoo Finance. Many homeowners signed contracts years ago and no longer remember their rates.
Curiously, the age demographic most likely to refinance their mortgage, millennials, was also the one most likely to be unaware of mortgage rates — 54% of millennials did not know their rates, the highest of any generation, despite a survey-high 28% of them reporting having refinanced their pre-pandemic loans. Only 17% of Gen Xers (ages 41-56) and baby boomers (ages 57-75) each reported refinancing pre-pandemic mortgages.
“My concern is the high level of millennial borrowers that don't know their rate; they could be oblivious to a tremendous opportunity that currently exists.”
A good rule of thumb for homeowners, he said, is that “if interest rates are half a percentage point or more below what you’re currently paying, you may be in a position to profitably refinance.”
After the pandemic, housing prices rose substantially, producing the hottest housing market in years.
“It can generate a pretty substantial amount of savings every month,” McBride said. “Refinancing a mortgage can cut your payments by $100, $200, or even $300 a month. Well that’s tantamount to a pay raise. That’s real money. Particularly at a time when households are being bombarded by rising costs on virtually everything else, that money’s gotta come from somewhere.”
Money from refinancing is commonly used to fund home improvements, debt consolidation, regular household bills, tuition payments, or other investment opportunities, according to the Bankrate survey results.
Thirty-two percent of those who have not refinanced pointed to lack of expected savings as the most important reason for their decision. Twenty-seven percent pointed to high closing costs/fees associated with refinancing.
Although fees can be costly, certain recent policy changes in the housing market have made it less so.
“One fee that was assessed on the majority of mortgages, beginning last year, has been eliminated,” McBride said. “The Federal Housing Finance Agency had been assessing a fee equal to half a percentage point of the loan amount guaranteed by Fannie Mae and Freddie Mac. That fee has since been repealed.”
Additionally, the current housing market is a more suitable environment for refinancing. “The run-up in home prices has made it such that the majority of borrowers refinancing are able to roll those costs into their loan, rather than paying those out of pocket,” McBride added.
Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.
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