October 18th, 2016 10:39 AM by Jackie A. Graves
The average rate on the popular 30-year fixed
mortgage has been so low for so long that a good chunk of borrowers can't even
contemplate the idea of it ever going higher.
Why should they? Every time we warn of rising
rates, or see a tiny bump up, some global economic tantrum pushes them back
down. Most borrowers have refinanced to take advantage of these low rates, but,
strangely more than 1 in 10 have not. These borrowers have rates above 5
percent, while the rest of us sit around 3½.
If you really want to get technical, almost
one-quarter of borrowers have rates above 5 percent, but a lot of them cannot
refinance. CoreLogic economist Molly Boesel ran the numbers and found the
following reasons why so many are shut out of the savings.
First, about half of the mortgages with the
highest rates either are or have been delinquent at some point, and that means
lenders will not refinance them to the lowest rates. The risk is simply too
Second, mortgages that are held in
private-label securities are much harder to refinance than loans backed by the
government. After the housing crash, the government instituted streamlined
refinance programs, which included underwater borrowers. That takes the share
of borrowers who are missing out down to 13 percent.
So what's up with the 13 percent?
"One final piece of the puzzle is the
size of the unpaid balance," wrote Boesel. "Small outstanding
balances may not be worth refinancing, as the resulting savings would be
Boesel found that eligible borrowers with
mortgage rates above 7 percent have an average balance of just $53,000. Still,
those with rates of 5 to 7 percent had closer to $100,000 in unpaid balances.
So would refinancing even that balance make much of a difference?
That depends entirely on what your original
loan amount was, explained Chris Boston, a loan officer with Monarch Mortgage
"If your original balance was $400,000,
yes you can reduce your monthly payment, because your original payment was very
big. You also take into account that the closing costs on a $100,000 loan is a
If, however, your original loan was at
$150,000 and you're now paid down to about $75,000, you're not going to see
much savings from lowering the interest rate. Some people are also averse to
resetting the timeline, as in if you're eight years into a 10-year loan, maybe
you just want to finish paying it off rather than refinancing into another
10-year loan. Either way, it's certainly worth talking to a loan officer,
especially now that rates look like they may finally, really move higher.