28 Oct2014
Written by CFB Blogger. Posted in Blog
If you are not refinancing your mortgage when appropriate, you could be losing out on thousands of dollars every year. Of course, just how much you stand to save depends on individual circumstances, but researchers have learned that a median household, which did NOT refinance its mortgage, lost more than $45,000 over the life of that loan. Can you really afford that?
According to an article in the
Chicago Tribune by Lew Sichelman, this serious mistake of not refinancing one’s mortgage is widespread across the country. The study by Benjamin Keys and Devin Pope of the
University of Chicago and Jaren Pope of
Brigham Young University, reveals that “Based on a sample of 1.5 million single-family mortgages that were active in December 2010…1 in 5 borrowers—that is, roughly 300,000 families—had not refinanced when it appeared profitable to do so.”
Homeowners have different explanations for not refinancing. The report continues, “One factor is that calculating the financial benefit, or loss, is relatively complex. Another is that the benefits are not always immediate, but rather accrue over time. [Also] refinancing can be expensive, often requiring cash out-of-pocket to cover a number of upfront costs.”
More important facts from the Tribune article: “The typical active loan in the sample was paying 5.52 percent in interest, had 23 years remaining and an unpaid balance of just over $200,000. The average loan-to-value ratio was 74 percent.”
The study authors found that more than 91% of the households in the sample would benefit from refinancing, although they admit that this figure is high and does not allow for such extraneous factors as planned moves and tax ramifications; they felt that 41% was a much more realistic figure. Further, eliminating households where credit scores had declined, whose loan-to-value ratios had increased, those who had been late with or missed a mortgage payment and/or those who had taken out second mortgages, the number remained that at least 20% of households should have at least looked into refinancing their loan to realize significant savings.
To further drive home the point, the study showed that for “a household with a 30-year, fixed-rate loan of $200,000 at 6.5 percent at origination…When rates declined to 4.5 percent…savings by refinancing over the life of the mortgage is more than $80,000, even after accounting for transaction costs.”
Should you be refinancing your home mortgage; better find out!
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