7.4M Owners Lose Out by Not Refinancing
Recent reductions in the 30-year fixed-rate mortgage could net the population of borrowers big savings if they would refinance, according to Black Knight Financial Services' latest Mortgage Monitor Report.
The Refinancing Picture
"Before the most recent reductions in the average 30-year mortgage interest rate, approximately 6 million borrowers met broad-based 'refinancibility' criteria," says Trey Barnes, Black Knight's senior vice president of Loan Data Products. "These criteria assume loan-to-value ratios of 80 percent or below, good credit, non-delinquent loan status, and current interest rates high enough that borrowers have an incentive to refinance. In light of where rates are today, and looking at borrowers with current notes at 4.5 percent and above, that population has now swelled to 7.4 million — almost a 25 percent increase. This is a relatively conservative assessment, though, as those with current rates of 4.25 percent to 4.5 percent could arguably benefit from refinancing as well. That group adds another 1.7 million borrowers to the population."
A separate study by the National Bureau of Economic Research found in an analysis of 1 million fixed-rate mortgages that 20 percent of Americans who failed to refinance could have saved more than $45,000 in payments over the life of their loan. At the time of the study, average interest rates were around 4.3 percent.
In recent weeks, the 30-year fixed-rate mortgage dipped below 4 percent, sinking to the lowest levels in more than a year, according to Freddie Mac. However, some home owners are struggling to refinance as their home values continue to recover from the housing crisis.
But Black Knight also found in its report that the equity picture has greatly improved. It found that 28 consecutive months of home appreciation since 2012 has caused the share of borrowers with negative equity to drop below 8 percent as of July, its lowest level since 2007. In 2011, the percentage of borrowers with negative equity stood at 33 percent.
What's more, an additional 8.5 percent of borrowers are in "near-negative equity" positions, with less than 10 percent equity in their homes.
"More than half of all borrowers have 30 percent or more equity, a level not seen in nearly eight years," Barnes notes.
Source: Black Knight Financial Services