A new survey from Zillow reported that less than a quarter of established homeowners refinanced their mortgages over the last year, despite record-low mortgage rates. Nearly half of those who did were able to cut their monthly payments by at least $300. The report revealed that those savings either went toward home renovations or paying off debt.
The company surveyed more than 1,300 homeowners who did not move over the past year (as of late April) to find out what motivated those who did refinance their mortgages, how much they saved by doing so, and what's holding the rest back.
More than half (59%) of those surveyed have refinanced the mortgage on their current home at least once. Additionally, just 22% of respondents said they did so within the past year. Mortgage rates have trended down since winter of 2018, and 30-year fixed rates dropped from 3.13% about a year ago to an all-time low of 2.65% in January of this year.
“In general refinancing a mortgage should be a bit less intense than a few weeks away at puppy boot camp,” said Jonathan Lee, Zillow Home Loans Senior Director. “A few hours of online shopping, talking to a mortgage professional and signing documents is a small price to pay for hundreds of dollars in potential savings per month, and goes a long way toward funding those dog training classes.”
According to the survey, close to 9 in 10 (89%) homeowners who refinanced in the past year said low interest rates were a reason they refinanced, and nearly 3 in 4 (74%) refinanced to reduce monthly expenses. About a third of homeowners who refinanced did so to pay off debt.
Zillow also reported that in terms of monthly savings realized, about 29% of those who refinanced saved $300-500 per month, while 18% saved more than $500 per month. Almost half (45%) saved less than $300 per month, while the remaining 8% did not see a monthly savings.
So, with such low mortgage rates, why weren't more folks taking advantage of them? Well, according to 37% of respondents, they were considering moving or paying off their mortgage soon, and 38% said fees were too high. About 29% of homeowners did not refinance because they reported that they don't understand the process.
Lee said one guideline consumers have followed in the past is that if you can lower your rate by 1 percentage point or more, it should make financial sense to refinance. However, rapid home appreciation has brought that number down.
“There are a lot of benefits to refinancing a home right now. Reducing monthly mortgage payments is extremely popular. It can boost borrowers' monthly cash flow by lowering the amount of interest being paid on their loan,” Lee said. “Fast-rising home values also make cash-out refinances a great option, allowing homeowners to tap into the increased equity of their home and reinvest their savings in other areas, like paying down high-interest debt, funding tuition or completing a home improvement project.”
Read more from Zillow's latest survey of homeowners we decided to refinance their homes and why some did not.
