According to a recent report by Bankrate.com, less than 1 in 5, or about 19 percent, of homeowners with pre-pandemic mortgages have refinanced.
Close to half, about 47%, with pre-pandemic mortgages have yet to consider refinancing, while more than a quarter, about 27%, have considered, but have yet to actually refinance. In addition to this, 7% don’t know if they’d refinanced their mortgage or not.
"The overwhelming majority of mortgage borrowers have not yet refinanced, despite record low rates over the past year," said Bankrate.com chief financial analyst Greg McBride, CFA.
The major reasons homeowners cited for why they haven’t refinanced included 32% believing it wouldn’t save them enough money, 27% saying there’s too many high closing fees and costs, and 23% saying there’s too much paperwork and hassle.
Despite this, "cutting the monthly mortgage payment by $150 or $250, possibly more, can create valuable breathing room in the household budget at a time when so many other costs are on the rise" McBride said.
Other reasons also mentioned were plans to move or pay off the loan soon, credit score issues, not qualifying due to unemployment or reduced income, owing more than their home is worth, and lastly, not knowing the reason why they haven’t refinanced.
"The most cited reasons for not refinancing might not hold up in this environment of ultra-low rates," McBride continued. "Reducing your payments with no out-of-pocket cash by rolling the costs into the loan are one way to trim the biggest household expense without compromising your savings account."
Therefore, homeowners are encouraged to consider refinancing if they haven’t already, especially with the current low-interest rates, but this has become challenging, especially among homeowners who don’t even know their current interest rate.
The report found that 38% of homeowners, including 54% of millennials, with a mortgage, don’t know their current interest rate, and therefore, don’t know if they could benefit from refinancing or not.
About 46% of total borrowers, who have a rate of 3 percent or more, are likely good candidates to refinance at lower rates.
To determine if refinancing would prove to be beneficial, Bankrate provides an example. For instance, a 30-year loan for $300,000 at 4% would cost $1,432 per month. If you refinanced to 3%, it would cut the monthly cost to $1,265, reducing your monthly payment by $167 or yearly payment by $2,004.
Interestingly, the report found that 21% of millennials think vacations and big-ticket non-essential items are good reasons to tap into their home equity. Compared to Gen X and Baby Boomers, Millennials are also more likely to view home equity as a way to keep up with household bills and to make other investments.
Despite this, about 28% of millennials with pre-pandemic mortgages refinanced during the pandemic, which was more than Gen Z and Baby Boomers, where only 17% of both generations.
Lastly, the report showed that homeowners with an income level of $50,000 or more are also almost twice as likely to have refinanced compared to those with household incomes below $50,000.