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74% of homeowners who bought before the pandemic are missing 'an opportunity to significantly reduce' their mortgage

"Just from a practical standpoint, [interest rates] can't go much lower."

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It's a cheap time to borrow money to buy a home: Since the pandemic began in early 2020, interest rates on mortgages have been at or near historic lows. It's one of the reasons that the housing market has been so hot during the last 18 months, as buyers have rushed to take advantage of the record-low rates.

"At a time when we're talking about the cost of so many things rising, here's an opportunity to significantly reduce the biggest monthly payment you have," says Greg McBride, chief financial analyst at Bankrate.

But a new survey from Bankrate indicates that not all homeowners are taking advantage of this opportune moment. Nearly three-quarters, 74%, of people who have mortgages that predate the pandemic have not refinanced their home loans, the survey finds.

A contributing factor: Almost two in five people with mortgages, 38%, don't know what their current interest rate is. That's even higher for millennial borrowers, more than half of whom, 54%, don't know their mortgage rate.

When it comes to your mortgage, ignorance is not bliss, especially because people who haven't refinanced their loans to current interest rates could be losing thousands of dollars a year, says McBride. With interest rates this low, refinancing right now can pay off for many homeowners.

Refinancing at current rates, even if it's just a few tenths of percent lower than the rate you're paying, could save you hundreds of dollars a month on your mortgage payment.

For example, if you have a $250,000 balance on your 30-year mortgage at a 4% interest rate, your monthly payment would be a few dollars shy of $1,200, according to Grow's mortgage calculator. But if you drop the interest rate to 3%, your monthly payment falls to $1,054, saving you more than $1,600 over the course of a year.

Potential savings motivated Seth Mullikin, a certified financial planner and founder of Lattice Financial in Charlotte, North Carolina to refinance earlier this year. He's now saving between 20% and 25% on his monthly payments, he says.

"It's a great time to refinance," Mullikin says. Looking ahead a few months, "it's very hard to predict what the Fed is going to do and try to time interest rates; it's almost like trying to time the market. But just from a practical standpoint, [rates] can't go much lower."

It's very hard to predict what the Fed is going to do and try to time interest rates; it's almost like trying to time the market. But just from a practical standpoint, [rates] can't go much lower.
Seth Mullikin
CFP and founder of Lattice Financial

If Mullikin had waited a few months more to refinance, he might have gotten a slightly better rate, he says, but he's happy he did it when he did. He'd rather be locked into his current interest rate when rates were on the way down than trying to refinance when they are on their way back up.

"If they do start to raise rates, I think most people wish they went ahead and refinanced," Mullikin says, "So I would encourage people to go ahead and do it, or at least look into refinancing, if they have not already."

Why haven't more people refinanced?

It's disappointing that so few people are taking advantage of this money-saving moment, McBride says, but it's not particularly surprising.

When asked why they haven't refinanced, 32% of respondents in the Bankrate survey said that they wouldn't save enough to make it worth the effort, and 23%, said it would require too much paperwork.

"It mirrors what we have seen in other surveys that we've done in years past," McBride says. "But rates are so low now, that a lot of those reasons just don't stand up."

He does acknowledge, however, that refinancing can feel onerous: It takes homeowners time and effort to complete the process, from researching lenders to collecting documents to getting an appraisal.

But in the end, the savings are often worth it, McBride says.

"It is a process," McBride says. "Yes, it's probably going to take a handful of hours of your time over the course of the next 30 days. But if you can save $10,000 In the next five years that works out to a pretty good hourly rate" of return for your time."

That rate of return was even better for Mullikin, who says his refinancing was surprisingly pain free.

"It was relatively quick and easy," Mullikin says. "I was expecting it to be more drawn out, but as soon as we went online and as soon as we put the information in and clicked asking them to call us, they called probably within two minutes. And the mortgage broker we were working with was very responsive."

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When refinancing doesn't pay off

While many borrowers can net some serious savings from refinancing their mortgages, it won't make financial sense for everyone, McBride says. People with smaller loans or those who are in the later stages of paying back their loan won't save as much.

If "you've got a loan balance of $50,000, it's going to be tough to refinance that at today's rates," McBride says. A lot of lenders won't even touch a loan that small.

A better bet for those individuals is to make a plan to pay the loan faster, McBride says. When a loan is that small, "the bulk of every payment is going towards the principal," so borrowers won't save much on interest by refinancing at a lower rate.

Homeowners who plan to move within two or three years also won't benefit much from refinancing, McBride says. If you're planning to sell in the near future, make sure to crunch the numbers on how much you'll pay in closing costs and figure out a timeline of how long it will take you to break even on those costs before you refinance.

"The benefit of refinancing is one that accumulates over time," McBride says.

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If you've decided to refinance your mortgage, don't forget to shop around

If you've done the math and decided refinancing does make sense, it's important that you shop around for the right lender for your situation, says Darin Shebesta, a certified financial planner and vice president at Jackson/Roskelley Wealth Advisors in Scottsdale, Arizona. Shebesta is just finishing up refinancing his own home.

It's usually a good idea to get estimates from several lenders, experts say. Shebesta also advises looking beyond the interest rates lenders are offering, to also consider closing costs and the amount of money you will have to put on your new loan.

If it starts feeling complicated, use word of mouth to shop around.

"Going to a professional like an advisor or an accountant or an attorney and asking them who they like" can help take some of the guesswork out of the process, Shebesta says. "There is a value in having a professional to help structure the deal and have you think about things you never thought of."

Seth Mullikan at home. Courtesy Seth Mullikin.

If your situation isn't too complicated, Google isn't a bad place to start, especially with the proliferation of online brokerages, Mullikan says. If you belong to a credit union, you may want to make that one of your first stops. "Sometimes, if you have accounts there, you're able to get a more favorable rate," he says.

And don't be afraid to think outside the box, Mullikan says. When he decided to refinance, he ended up going with a lender that he found through Costco.

"We were really impressed," Mullikan says. "This isn't an endorsement from me, but I will say Costco, actually, does a really good job of getting low rates with very low closing costs."

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