Fannie: Where Are All the Refis?

February 10, 2014

Mortgage giant Fannie Mae recently conducted two surveys to find out why nearly half of home owners who are eligible to refinance their homes have not done so. The agency points out they could secure a lower mortgage interest rate, thereby lowering their monthly payments. Still, Fannie Mae found that only 25 to 30 percent of home owners said they had refinanced in the past three years as mortgage rates decreased to record lows.

Fannie Mae researchers found that borrowers identified some of the biggest barriers to refinancing as they “tried to refinance but have been unsuccessful.” Others reported that they did not have enough in savings, while still others faulted “high closing costs.” They found another refinancing barrier among borrowers was from perceived situational factors—such as the relative size of the original and remaining mortgage principal and the number of years expected to remain in the house.

Researchers discovered that those who do refinance tend to do so due to “life cycle” factors, such as years of home ownership, and certain demographic factors. For example, the study found that those who tend to refinance have been living in a home longer (averaging between 6 and 15 years), are married, and have a higher education level than those who have not refinanced.

“The important role that life cycle factors play in past refinancing behavior suggest that a borrower’s financial experience and literacy, possibly gained through home ownership length and education, may encourage mortgage refinancing,” writes Li-Ning Huang, senior manager of Business Strategy Economic and Strategic Research, on the Fannie Mae blog. “Findings suggest that a better awareness of one’s financial situation could encourage consumers to consider refinancing and to take action.  In addition, resources and tools that help build financial literacy and awareness could lead to higher rates of refinancing.”

Source: Fannie Mae

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