Mortgage refinancing - why have nearly half of homeowners still not taken advantage?

Fannie Mae recently published an article stating that 40-50% of eligible homeowners that could benefit financially from a refinance have not yet done so. 

This figure floors me. Even more shocking
is that of the 50-60% who have refinanced, only 25-30% have refinanced within the last three years during record interest rate lows. You may be thinking, "this is because banks have tightened up their loan guidelines and many borrowers don't qualify." You are partially right, but the survey contends that while 7% have tried unsuccessfully to refinance, 39% of people haven't even attempted or researched refinancing options. You can read the story here.

Why are people so hesitant to refinance when it could benefit them?

The article is based on a phone survey of current homeowners and they were asked to name their top reasons for not taking advantage of the current lower rates.  The top answers were:

1. "Not reducing payments enough"
2. "Closing costs are too high"
3. "Not wanting to lengthen loan term"
4. "Not sure what to trust with lenders"

I'd like to tackle each of these concerns one-by-one:

1. "Not reducing payments enough"

I have personally heard this from several borrowers in the past and I'll be the first to tell a homeowner, sometimes it simply isn't worth it. However, I have heard this when the potential savings are $100, $200 or more per month. My response to these borrowers is "If I were to tell you that if you filled out some paperwork and provided some documents to me over the next two or three weeks that I would drive to your home on the first of every month and hand you two crisp $100 bills, you would say no?"

2. "Closing costs are too high"

As discussed above, sometimes this may be the case. If you are not saving very much each month or you don't plan on being in the home for much longer, this is a valid point. Many times though, it is not. Too high is a relative term and if your monthly savings are significant, you can make save much more than the closing costs over a short period of time. For a simple example, let's say you decided on a new 20 year fixed mortgage and it was going to cost you $2,500 in closing costs*. If it lowers your payment $100 a month, it will only take 25 months, or basically two years, to break even. As stated above, if I asked you to give me $2,500 today and in exchange I would deliver $100 to your door for the next 20 years, would you do it?

Most lenders are also able to offer reduced or no closing costs in exchange for a higher rate. If this higher rate still saves you money each month, what is the down side? Why not explore those options to see if you would benefit?

*just an example, this number varies greatly by lender, program and rate.

3. "Not wanting to lengthen loan term"

This is an interesting one. Fixed loans are available for 10, 15, 20, and 30 year periods. The beautiful part - the lower the loan term, the lower the mortgage rates typically are. Simply choose a term that is lower than the amount of years remaining on your mortgage and if the monthly savings are still there, you are saving money each month and reducing the remaining term.

Another option is to simply make payments as if you still had the same amount of time remaining. If you have 23 years left to pay on a 30 year fixed mortgage and you refinance into a new 30 year fixed mortgage, you can make 23 year payments and it will pay off in 23 years, not 30. Feel free to contact me if this is confusing, it is a bit broader than the scope of this post today. 

4. "Not sure what to trust with lenders"

This is a hard one to overcome. Some "professionals" in my line of work haven't given the rest of us a very good name over the years. My advice is this, do a little research and find someone to trust and you'll never have to worry about it again. Just like you have a family doctor or an accountant or a lawyer you go to, find yourself a mortgage professional that you feel comfortable with and use them as a resource. Read online reviews, interview a few candidates, get a referral from a friend or coworker - there are plenty of ways to find someone reputable to deal with. A little research and effort now will save you from ever having to wonder if you are in the right mortgage ever again. 

The good news - it's not too late.

Mortgage rates are not the lowest they have ever been...but they are close. Current mortgage rates are still lower than they were in any year before 2010. That means if you have had your current mortgage for more than 4 or 5 years, your interest rate is probably too high and you may benefit from refinancing.

Don't hesitate, call a local mortgage professional and have them review your current financial situation. If you are in Arizona, you can certainly contact me anytime. Most reputable mortgage professionals will review your info and give you a true indication of whether or not refinancing may improve your situation. Frankly, I've received as many personal referrals from borrowers who I have not refinanced as those that I have actually done a loan for because I have told them they would not benefit from refinancing.

Thanks for reading my blog!

via:http://arizonamortgagepro.blogspot.in/2014/02/as-many-as-half-of-eligible-homeowners.html