According to Black Knight’s April “Mortgage Monitor” millions of homeowners could refinance their mortgages and save money.
Yet, despite interest rates hovering near 3-year lows, prepayment speeds, historically a good indicator of refinance activity, fell in April.
The April “Mortgage Monitor” builds on March analysis of refinance candidates. Here is the pertinent chart from last month.
Refinance Candidates
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Roughly 2.3 million people could refinance their mortgages and save money doing so. That assessment was based on an FHLMC Mortgage Rate of 3.58% on April 14.
A quick check shows the rate is still 3.58% as of May 19.
Apparently people do not want to save money.
Mike “Mish” Shedlock
Save if you refinance for the same period… the Mortgage companies normally try to refinance you out to another 30 years and call it ‘saving’. Not the case…
Could it be fear the house comes back worth less than the loan?
The refinancing’s I did were ‘streamlined’ which meant that no new appraisal was needed since I wasn’t taking money out of equity.
I could refinance but I prefer not to right now. Refinancing could take $100 off of my mortgage per month but I am holding off because my mortgage at present is well under $900 a month below most mortgages and well below any rent for a house. During a refinance there are closing costs that will eat away any savings one might glean from refinancing plus the mortgage clock starts over, 2 things I don’t want to deal with at present.
I got a 5/1 ARM @ 3.0% in 2012. Going to refinance in 2017; I’m expecting to get 2.75% this time.
More likely a large number have borrowed against their equity prior to 2008. Perhaps they are not eligble to refinance.
Multiple factors in play:
Those who could benefit most from a refinance probably don’t have the credit scores to justify the lowest rate.
LTV (Loan to Value) ratios may not justify refinancing if the house isn’t worth as much as the borrower thinks it is (i.e. they can’t pull enough cash out)
Those 3-year-low rates are higher when you try to roll the closing costs into the loan. No such thing as a zero-cost loan from a mortgage company. It’s important to remember that we are talking about a predatory financial sector here.
Millions of people were burned by the banking and mortgage sector in the last collapse. Those wounds don’t heal easily. (Fool me once; Shame on you. Fool me twice; Shame on me)
It’s business as usual in the financial sector…The fraud and looting will continue until confidence is restored.
Does’t the loan reset back to 15 or 30 to qualify. Which means your payment is lower monthly, but longer and therefore not worth it?
We were locked at the new rate with zero cash out. In finalizing terms the loan officer asked if we wanted to add enough to the loan amount to cover closing costs and replied to my question that no, it would not affect the rate. We did add one-quarter point to the rate to maintain a $100,000 HELOC with a zero balance.
closing costs
I believe the explanation is homeowners no longer can qualify for the loan they originally received because they’ve lost their job or their self-employed earnings are down. I’ve been in that position before and you just can’t do anything.
Most people are financially illiterate and even those that aren’t don’t think unless they absolutely have to. Besides, refinancing is soooo much work. Better to wait for Bernie to forgive our mortgage debt.
many people have other loans that are dependent on the “relationship” their banks have entangled them with in the name of maintaining a credit score by having a long term bank relationship – hopping around lowers your credit score
For example, many will have taken out “emergency loans” or “pay day loans” to pay for health emergencies, like sick kids that develop long term health conditions. Their finances leave other banks unwilling to take them on.
Poor credit, high DTI, and other disqualifying factors are still a big issue with borrowers.
It also costs anywhere from 2-6 thousand dollars to refinance. Some people are not able to come up with those kinds of funds. In some cases, there is not much, if any savings produced when the cost of the refinance is taken into account.
“Millions of Homeowners Could Refinance and Save Money: Why Don’t They?”
In my case, fear of massive banker fraud. First there was appraisal fraud, which prompted 10,000 appraisers to petition the government in 2001. Then there was mortgage fraud, foreclosure fraud, etc. After all that i became concerned that the next major banker fraud would be refinancing fraud. I lost any trust in the bankers. My bank even propositioned me with with a one time rate cut offer through some government program- i didn’t trust it. Threw the offer in the trash.
Nothing was fixed after 2008. I got refinancing offers in the mail, some of which still said they had a no doc refinancing program available.
Also, in some states an original mortgage is non-recourse whereas a refi is recourse. Makes a big difference, especially if one’s employment situation is iffy.
Part this.
Also, note that old mortgages have the bad or indefensible language in them in regard to MERS.
Refinanced mortgages will come will all sorts of new terms. I expect to see some in regards to devaluation of currency.
“My bank even propositioned me with with a one time rate cut offer through some government program”
Not surprising. With the robo signing & MERS debacle, lenders would love to have people refinance into “clean” mortgages.
If the bank is OFFERING something, do you think it benefits them or you?
Most likely they have something up their sleeves. They might have lost your documentation, want to change the terms for recourse, or simply want to book a few thousand in fees.
Look this gift horse in the mouth very carefully.
I refinanced quite a bit going from a 40 yr (yes 40 yr) sub-prime loan down to a 3.4% 30 year loan. The benefits of refinancing:
Lower monthly payment, possibly getting rid of your PMI.
Cons:
It can be some work (I’ve done it several times and while it’s stressful it isn’t quite ‘a lot of work’…the guy selling you on the loan is doing almost all of it, you are just supplying documents).
– That said customer service is often bad.
– The process is often deceptive. You will be told you can close in 30 days so you can skip your next mortgage payment….in fact they often advertise refinancing as ‘taking a month off’ of your mortgage payment. I find they always cut it very close or go beyond and you’re wondering if you’re going to get dinged by your mortgage company for being late.
– Once you get past the first level, you notice you keep sending documents to different people at the company, often the same document you sent earlier. The people you deal with get less helpful and friendly as you move along until the very end of the process.
There are closing costs, even though they often are rolled into the loan you have to ask yourself how much are you saving if your payment drops $5 a month but they add $3000 in costs to your loan balance, say?
Perhaps most importantly it ‘resets’ the time on your loan. After paying into a mortgage for 10 years, it is a bit of a downer to set the clock back up to 30 years again.
There’s a speculation element too. If rates drop from 9% to 5%, it seems very sensible to refinance…but what if rates are going to keep dropping down to 3%? Since each refinancing imposes costs the best option is to wait until the market bottoms and then refinance. So you’re trying to time the market on some level.
The ‘cons’ are always going to be a friction that means some people will resist a refinance opportunity even though it could technically lower their costs a bit.
Naturally the metric above is purporting to measure those who ‘could benefit’ and appears to be coming from the mortgage industry itself so a big question is how do they measure the benefits and how do they consider the costs? If they downplaying the costs you are getting a sales pitch here….it’s like asking the cell phone industry how many ‘could benefit’ from upgrading their phone. The answer is never going to be small.
“Roughly 2.3 million people could refinance their mortgages and save money doing so.”
Total that could be “helped” is 7.5 million … the 2.3 million is the extra since 4 months ago.
But is it really helping if the term extended? If you run the amortization calc … the first years predominated by interest … the last years principal. If you refinance a loan originated in the past few years you could EASILY be on the hook for higher principal amount if closing costs rolled in (which, of course, everyone does). Yes, the monthly likely lower (why else would the sheeple refi then?) …. but is it worth setting the mortgage clock back to 30 years?
Agreed. Re-starting the clock after 3 or more years is usually stupid if you aren’t getting a 1.5% cut in rate. I suppose if you use the savings of the lower monthly payment to buy gold then you will probably come out ahead, otherwise what would you do with the savings? Invest in the stock market? Buy Treasuries? LOL!
I have a first mortgage at 3.85 percent and a HELOC adjustable currently at 3.5. I contacted a lender to consolidate at the 3.5 fixed they were advertising. To qualify for that rate, the LTV had to be at 75 percent. I am at 80 percent which would have been a rate at over 4. Decided to keep my current loans.
HELOC’s. Many, many “homeowners” have Y-Yuge outstanding HELOC balances. Maybe they are not underwater on the first mortgage, but they are when you add in the second.
And by the way, HELOC’s are interest-only, usually for the first ten years. Then your payment doubles as the principle amortization kicks in. Then factor in a couple of Fed tightenings which increase the variable rate, and you are looking at some serious financial pain.
Years ago the guy next door tried to refinance his Bank of America loan but BOA had sliced and diced the loan into pieces that went to various people (around the world I guess). So either refinancing was impossible or all those people who got pieces would have to agree or it was something about this that blocked the whole thing.
“Apparently people do not want to save money.”
In my case, i don’t want a banker to steal my house. That may sound irrational to you, but i don’t trust the bankers any more, after MULTIPLE massive banker frauds. I would love to have saved money, especially as i had an exceptional FICO score, but what kind of fraud are the bankers up to this time?
None of these people are in prison for what they have done and now they want a cashless economy, in which they will have complete control over the product of anyone’s labor. The product of my labor should belong to me, not the banks.
I’ve looked into this over past decades and the problem usually comes down to the closing costs are not recovered in the time I expect to have that loan. It’s a net-loss unless you hold a home for 10 years – which people are not wanting to do since they’ve already been wallowing under water for that long.
Lots of great answers here. Bottom line: the whole process is so complex with so many opportunities to get scammed that it simply isn’t worth your valuable time. It is the epitome of market failure.
Real simple for us. Equity was wiped out after 2007. Self-Employed. The bank is going to own this house come next July. Have made mortgage payments since 1982 and have never missed one. It’s been great, but the time to rent is here.
Bought in 2010 with 30 yr fixed at 3.5% then refi done 2 yrs later at 2.8% on a 15 yr. why pay a bankster who receives money from the fed at a low rate and then loans it to you for a higher rate?
then if the loan goes bust gov agency Fannie and Freddy are on the hook. No Skin in the Game banks. (This shouldn’t even be allowed) Not to worry rates WILL continue to fall. (See Lacy Hunt) I’m hoping that rates will drop over the next five years to a 1% on the 15yr fixed. Why isn’t Greenspan, bernanke, and Yellen and their troops all in jail or at least removed by the public? For the Same reason people don’t refi…modern American apathy. Just ask your neighbors, most don’t care, and can’t be bothered.
I looked at refinancing earlier this year, but because I’m paying far more than just the monthly principal + interest that is due, it would end up costing far more to refinance. The plan is to pay off my 15 yr mortgage in 6 years just by paying down as quickly as possible. Refinancing will end up saving me about a point or so in interest, but as others have pointed out, there will be closing costs to contend with.
Much simpler to just pay extra each month and bring the principal down, if you don’t have a penalty for doing it. If you get aggressive it might be cheaper cheaper anyway. Some would say I should invest that extra money I’m paying, but show me a safe investment that will pay me more than the 3% I’m paying out in mortgage payments (without the stress of watching the stock market every day) and I’ll consider it. And remember, any investment comes with strings (fees) of some sort attached.
It just shows that people do not make rational financial decisions.
I was hoping to refinance in a 12-year rapid refinance mortgage for $200 but the interest rate was more than my current 15-year. Or I could refinance into a 15-year for almost $200 less a month, but with closing costs and extra interest, it doesn’t seem worth it.
While I was employed I paid a 30 year mortgage in less than 7 years.
After I retired paid off a 15 year mortgage in less than 4 years.
In neither case did it make much sense to refinance.
I constantly ran numbers and updated scenarios. At one point I assumed I could refinance to 0% at no cost … and given where I was in paying off the mortgage, it barely moved the needle.
Best wishes…