Why Aren't More Borrowers Refinancing?

In a nationwide survey, Bankrate found that even as mortgage interest rates continued to fall to record lows last year, only 17 percent of borrowers refinanced last year. The survey also reported that 27% of homeowners do not even know their current rate.

“Millions of homeowners could be missing out on tens of thousands of dollars in savings by not refinancing their mortgages at this year’s record low rates,” said Greg McBride, Bankrate chief financial analyst. “Roughly 8 in 10 homeowners with a mortgage have not refinanced and more than 1-in-4 doesn’t even know what rate they’re paying.”

Additionally, about a quarter of homeowners (27%) considered refinancing last year but hadn’t yet and 52% had not even considered it. When the survey asked why borrowers did not refinance, the largest issue (33%) was that borrowers did not believe it would save them enough money. This may be true for many borrowers. As rates stayed near all-time lows over the past few years, homeowners have taken advantage of the savings with new loans. In fact, in the fall of 2019 when rates took a dramatic dive, refinance requests were up by over 300% annually. However, the average rate on a 30-year fixed rate conventional mortgage ended at 3.74% in 2019, according to Freddie Mac data. The current rate at the time of the study was 2.84%. With even lower rates now, even those who refinanced last year could now realize another couple hundred dollars’ savings each month.

The next most cited reason (23%) for not refinancing was that closing costs and fees were too high, followed closely (22%) by a distaste for all the paperwork and hassle. While refinancing does require fees, some loans allow borrowers to roll those costs into the balance of the loan, meaning no upfront payments are required. And with so many online platforms, refinancing does not have to be a paperwork headache. With a few pieces of information, most applications and loans can be processed via the internet.

Another 14% of homeowners said they did not refinance last year because they plan to move or pay off their current home loan soon, while 10% said their credit score is too low to qualify. Unemployment or reduced income accounted for 6% of non-refinancers, and 17% declined to disclose why they didn’t take advantage of lower rates.

A separate survey question asked about the Dec. 1 refinance fee on Federal Housing Finance Agency (FHFA) loans. Over half of respondents said that additional fees was deterring them from acquiring a new mortgage, with baby boomers and GenXers citing them as a significant factor. The new fee amounts to a 0.5% assessment on government-backed loans of $125,000 or more upon closing. While that cost will make a refinance loan slightly more expensive, mortgage rates are so low today, that borrowers can still save money even after the 0.5% is factored in.

Millennials were the most likely to have refinanced last year at 21%, while just 16% of Gen Xers and 14% of baby boomers got new home loans. That may have something to do with the fact that many boomers are nearing the end of their mortgages anyway and wouldn’t be able to recoup the closing costs over the remaining course of their loan.

For those who didn't refinance in 2020, Bankrate’s McBride encourages borrowers not to let upfront costs scare them away. “The $3,000 in costs incurred today could save you $15,000 over the next decade and $30,000 over the life of the loan.”

If you haven't refinanced your home in the last 6 months then you're missing out on some of the best rates in history. Give us a call today at 801-221-9400 and we can show you how much you can save by refinancing your home to a lower rate or extending the term of your loan.