In spite of the fact that interest rates continue to hover at the second lowest level since the presidential election last November, the number of consumers opting to refinance the mortgage on their home has been extremely low.

This is a surprising development because, generally speaking, the amount of interest in refinancing trends higher when interest rates are low. 

Compared to purchase transactions, the rate of refinancing activity is at a 16-year low. With the average interest rate on a 30-year fixed rate loan still coming in at around 3.78 percent, and interest rates on 15-year fixed rate loans currently at 3.08 percent, the low pace of refinancing activity seems to fly in the face of common sense.

Why wouldn’t you want to save some dollars and cents on your monthly payment each month by choosing to refinance?

Even a slight drop in interest rates can make a profound impact on the amount of money a borrower is required to pay each month. The amount of money the average borrower with a good credit score could save each month by refinancing for a loan with a lower interest rate is simply left on the table, gone.

In the case of a refinancing transaction with zero points, in which the settlement charges are $3,000, it would only take nine months to recover the charges if the savings were $349 each month.

The amount of time a borrower plans to stay in a home also makes a dramatic impact on the cost-effectiveness of refinancing. 
For borrowers who plan to stay in their current home for at least a year or more, it makes good financial sense to refinance in favor of a lower monthly payment, in almost every situation. Basically, the longer you plan to stay, the more impact the monthly savings will have.

So, why are so many home owners deciding to continue paying on higher interest rate loans when they could be saving money every month?

The opinions among my colleagues vary on this. Some have heard borrowers state they would rather not open up their finances, jump hurdles and go through the hassle of the transaction. Some believe their borrower clients simply do not have the time to look into it. Some point to a lack of consumer awareness about the potential for monthly savings, which is partially
why I’ve chosen this topic. 

Every month a person decides to stay on the fence and wait, a month of savings on interest rates and payments are lost. And of course, there is the possibility that interest rates will have increased by the time the decision is made to refinance.

There will always be those borrowers who believe that interest rates will trend lower, and this could be part of the explanation for why refinancing activity is low. However, if interest rates do happen to trend lower in the future, the borrower could pursue another refinance transaction. 

Another factor is appreciation. Home prices in our area have appreciated significantly over the past few years, so it could be a good idea to do a pursue a refinance with the goal of getting cash out, eliminating private mortgage insurance or getting rid of a second mortgage.

To see if a refinance would make dollars and sense for your specific financial situation, give me a call at the number below. 

Patrick Stoy (NMLS Numbers 39527 and 39166) has 18 years of mortgage lending experience. Patrick is CEO of Wilmington-based Market Consulting Mortgage, which he started in 2005 with a mission to build lifelong customer relationships by providing real value. To learn more about Marketing Consulting Mortgage, visit www.macmtg.com. Patrick can be reached at [email protected] or 910-509-7105.