Failing to Refinance at Low Rates Could Cost You Thousands of Dollars
October 3, 2014 • Posted in Homeowner Tips
In December 2010, 20 percent of U.S. homeowners could have refinanced their mortgages and saved an average of $45,000 each over the life of their loans, but they failed to do so.
The National Bureau of Economic Research analyzed 1 million fixed-rate mortgages from that month and estimated that, in all, millions of Americans with fixed-rate mortgages failed to take advantage of money-saving refinancing opportunities that month, when interest rates hovered near record lows.
Some homeowners later said they were unaware of the potential savings from refinancing or were unwilling to follow through on the necessary paperwork, according to an article in The Washington Post. Some said they simply failed to open mail that offered once-in-a-lifetime refinacing deals.
Even more amazing than the behavior of homeowners in December 2010 is that fact that interest rates today are lower than they were back then: Freddie Mac reported Thursday that current 30-year fixed-rate mortgages averaged 4.19 percent — lower than the average 4.3 percent in December 2010 and close to the record low of 3.31 percent set in November 2012.
Still some homeowners today are still nervous about refinancing, even when it can save them thousands of dollars.
Andrew Celis, who teaches financial literacy classes at Neighborhood Housing Services of Chicago, told the Post that some homeowners don’t refinance because they’re afraid that making changes will jeopardize their mortgage.
“A lot of homeowners that we communicate with on this issue sort of have just held their eyes to the ground, and have said, ‘I’m going to do whatever I need to do to make my payments monthly,’ ” Celis said.
Today’s low interest rates won’t last forever, however. It’s worth remembering that the average interest rate on a 30-year, fixed-rate mortgage in the 1990s averaged 8.12 percent, and in October 1981, mortgage rates peaked at more than 18 percent.
(Image: Flickr/Mark Moz)