Why Some Homeowners Choose Not To Refinance?
As mortgage rates trend downward, plummeting more than three-quarters of a percentage point since March, refinancing growth has literally exploded. From the first quarter of 2020, when the average rate on a 30-year fixed-rate mortgage was 3.5%, to the second quarter, when rates fell to 3.13%, refinance lending jumped more than 60% in the US. Compared with the same time last year, refinance activity spiked by 200%.
As far as California is concerned, there are more eligible borrowers in our state than in any other state in the US. This can be easily be explained by the fact that California has the largest population. In fact, the state’s population eligible for refinancing is more than twice as large (2.95 million homeowners) as the second-place state, Florida (1.34 million). As a result, up to 45% of homeowners in California have the opportunity to save money by locking in a lower rate.
However, in spite of rates continuing to fall, millions of homeowners remain on the sidelines, sitting out the opportunity to save thousands over the life of their loans.
There is no doubt that COVID-19 has impacted the creditworthiness of many, as a consequence of a reduction of income. In other words, they are focusing on staying on top of their current bills and may not qualify in terms of the maximum debt-to-income ratios required by lenders to refinance.
In some cases, keeping in mind the refinancing costs, some homeowners who borrowed at a low enough rate may not be able to enjoy significant savings, especially since a reduction in market rates does not always lead to an immediate reduction in borrowing rates.
Another factor is that homeowners who refinanced recently may be reluctant to put down more money to refinance. They may also be waiting for rates to drop further.
Finally, some homeowners who are trying to refinance could just simply faced with delays. The recent spike in refinances demand is likely to overwhelm lenders.
On average, it is estimated that Californians could save about $405 per month by refinancing. That’s a total of $1.19 billion in monthly savings for the Golden State homeowners.