With mortgage interest rates falling back to record lows, many homeowners will wonder if they should. refinance your homes. You will find many websites and other sources of information that can be used to help you make this decision, for example, Zillow’s refinancing calculator. But still, recent research suggests homeowners are losing billions of dollars in potential savings.
In a recent National Bureau of Economic Research working paper, Benjamin Keys, Devin Pope and Jaren Pope point out that housing makes up two-thirds of the typical household wealth, so mortgage decisions “can have substantial consequences in the long run for the accumulation of household wealth “.
In particular, relatively small changes in the interest rate on mortgage loans can have a much greater impact on a home’s monthly mortgage payments, and these changes can add up to considerable sums over the usual long life of a mortgage.
Here is an example of the non-technical summary of his research:
“… a home with a 30-year fixed-rate mortgage of $ 200,000 at a 6.5% interest rate that refinances when rates fall to 4.5% will save you more than $ 80,000 in interest payments over the life of the loan, even after counting.for typical refinancing costs.With long-term mortgage rates of about 3.35 percent, that same home would save approximately $ 130,000 over the life of the loan through refinancing “.
But many households fail to take advantage of these savings. For example, in the study period, December 2010, 20 percent of households that would have benefited from refinancing and had the ability to refinance did not. The average amount of unrealized savings was about $ 160 a month, or $ 11,500 per household for the remaining life of the loan. The total amount of all households was approximately $ 5.4 billion.
Why don’t so many households take advantage of this opportunity? The authors suggest several reasons: the lack of information on refinancing opportunities, the inability to properly assess the options they are aware of, the delay and mistrust in the financial sector (which may have increased substantially due to the collapse of the real estate bubble and the subsequent financial crisis).
If you own a home with a mortgage, here’s a simple lesson, which could pay big dividends: Take some time to thoroughly research your refinancing opportunities. It could be more beneficial than you think.
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