A Fannie Mae National Housing Survey has determined that out of all of the borrowers surveyed, around 40-50% stated that they have not yet refinanced on the whole which they currently reside. This statistic is perplexing considering how much money borrowers can save when they have the opportunity to refinance. Refinancing loans to a lower mortgage rate can result in significantly lower monthly payments. So if refinancing can save borrowers money, why aren’t they doing it?
To tackle this question, Fannie Mae’s Economic & Strategic Group analyzed two separate motivators for borrower refinancing. The first was to understand which factors played in to the decision of borrowers who followed through with a refinance in the past. The second was to understand the factors that played into a borrowers decision to refinance in the future (defined by the study as within the next 12 months). The study was conducted in Q1 of 2013.
The two main points taken from the study are that “life cycle” factors and demographic factors are the most significant in affecting a homeowner’s determination to refinance. The most prominent factors that influenced former homeowners to follow through with a refinance were: #1 the amount of years in a home (the majority of responders had spent anywhere from 6-15 years in their home), #2 marriage, and #3 a higher education level. As noted in the study, many borrowers chose to refinance before half of the loan term was up (data taken based on a 30 year loan). This was most likely due to doing simple math calculations to determine how much money would be saved over time with a lower interest rate. It is likely that those with the higher education levels were more drawn to refinancing their homes because they had done research on what refinancing entails over the years through traditional research or through comparing notes with different loan officers. Or, perhaps they learned about refinancing during their years of schooling. The biggest opportunity factor for those who had refinanced in the past was obvious; declining mortgage rates.
For those with the intent to refinance within the following 12 months, the survey concluded that the biggest factors influencing their intent were; #1 their stress about having the ability to meet their debt obligations, #2 having tried to refinance in the past, but being unsuccessful in those efforts and wanting to try again, and #3 that they expect their financial situation to get better in the next 12 months, making them more eligible for a refinance in the bank’s eyes. 22% of these responders also perceived refinancing as an opportunity, because at that time they perceived an ease of getting a mortgage.
All borrowers and potential borrowers alike should remain extremely mindful of their financial situation when considering home buying or refinancing in the future. The more that borrowers know about their own financial situation as well as about refinances, the more power that they have to save thousands of dollars in their future. Many believe that market rates are all that they need to consider in this process, however it is crucial to understand that how a borrower looks on paper is instrumental in a lender’s decision to refinance or even initially finance a loan. For more tips on what to consider before obtaining a mortgage loan, read: http://broadviewmortgageorange.com/thinking-buying-home-follow-tips/ The tips within this article apply to homeowners looking to refinance as well.
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