March 15th, 2016 12:22 PM by Jackie A. Graves
Mortgage rates have been
historically low for several years, but a surprising number of borrowers are
still not taking advantage even though rates fell again at the start of this
year. How many? Close to 7 million.
the Federal Reserve raised its target interest rate in
early December, the common expectation was that mortgage rates would rise.
Refinances had already dropped by nearly a third throughout 2015, as rates
inched up in anticipation of the Fed's move.
economic shocks then sent investors looking for the safety of U.S. Treasurys,
driving down yields on benchmark 10-year bonds. Mortgage interest rates began
to fall in defiance of prevailing wisdom, and the refinanceable population grew
by 30 percent in the first six weeks of 2016," said Ben Graboske, Black
Knight Data & Analytics senior vice president.
interest rates dropped 30 basis points in that time. By the end of February,
6.7 million borrowers could have saved an average of $3,000 per year,
representing a total of $20 billion in potential annual savings, according to
an analysis by Black Knight. These borrowers have enough equity in their homes
and high enough credit scores to qualify for refinances.
"It's lack of awareness of
the opportunity, and how to act on it," added Graboske.
much does that translate into on a monthly payment? More than 3 million
borrowers could save $200 a month or more; nearly 1 million could save $400 a
month or more. Mortgage refinance applications have increased in the past two
months, but millions of borrowers are still sitting on the sidelines, perhaps
unaware of the savings, or just too lazy to go through the process.
are costs that come into play for sure and there is often the perception of
costs," said Graboske. "Still, if you look at this population, we
have 1.5 million borrowers that are sitting at almost a full point above what
they could be."
Knight broke borrowers up into rate clusters and found that about 3.4 million
borrowers had active 30-year mortgages and interest rates of 4.5 percent to
4.75 percent. Of these, 1.5 million met broad-based underwriting criteria, and
would be impacted when rates moved from 4 percent to 3.75 percent. When you
look at the 4.25 percent to 4.5 percent rate range, 4.7 million had active
30-year mortgages, 2.1 million of which met underwriting criteria. They become
"in the money" if rates drop from 3.75 percent to 3.5 percent.
rates did move slightly higher in the past week, but not enough to change most
of the analysis here. Millions of borrowers are still choosing to pay more than
they have to on their home loans. That opportunity is likely to vanish in
coming months, should rates rise as expected. Of course, last year most
expected mortgage rates would already be far higher than they are now, and that
did not materialize.
By Diana Olick - To view the
original article click here