Nearly half of the homeowners who could refinance
their homes have not done so despite the prolonged availability of record low
mortgage interest rates. Fannie Mae's
Economic & Strategic Research Group recently conducted two separate analyses
of data from the company's National Housing Survey (NHS) to find out why. Results were published recently by Li-Ning
Huang, Ph.D. Senior Manager of the group in Fannie Mae's FM Commentary blog.
Responses to the NHS (conducted in the first quarter of 2013) indicate that 40 to 50 percent of those surveyed
had not refinanced the mortgage on their current home. Further, only 25 to 30 percent said they had
refinanced in the past three years as mortgage rate declined to historic lows. Among
the group that had not refinanced in the last three years only 10 percent said
they were "very likely" to refinance in the future. A Federal Reserve study
conducted in 2001 and 2002 confirmed this behavior, finding that only about
half of homeowners with mortgages refinanced at least once after buying their
Fannie Mae's first analysis looked at the factors associated with having
refinanced in the past and the second studied the factors that could motivate the
intent to refinance over the following 12 months. Factors were grouped into three categories:
Life Cycle. (Age,
marital status, education level, income, children in home, years in home.)
ease of getting a mortgage, mortgage rate regime (declining, stable, rising).)
(Stress over payments, concern about job loss, prior failure to get a
loan, perceived underwater status, doubt about wisdom of homeownership,
expectation of improving finances)
factors were the dominant variable borrowers associated with their past refinancing
behavior, especially the number of years the borrower had owned the home. Most
had refinanced after six to 15 years.
Marriage and higher education levels were also associated with homeowners'
past refinancing behavior. Among opportunity
factors previous refinancers most frequently cited declining mortgage interest rates.
Borrowers who want to refinance in
the next 12 months think differently from those who have not refinanced. Such borrowers want to mitigate their risk
and are specifically more worried about their personal finances and want to refinance
to get them under control. Many have "tried
to refinance but have been unsuccessful." Borrowers who perceive it will be easy for
them to get a mortgage are more motivated to refinance and life cycle status
such as income is also a driver.
The important role that life cycle
factors play in past refinancing behavior suggest that a borrower's financial
experience and literacy, possibly gained through homeownership length and
education, may encourage mortgage refinancing. 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
Huang said the NHS results also show
there may be other factors influencing people against a refinance. For
example, the considerations of "not enough savings" and "high closing costs"
are top refinancing barriers cited in the study. 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 could affect borrowers'
assessment of refinance benefits. Further research into the situational
factors that may impact borrowers' decision making as well as borrowers'
financial literacy and awareness is needed to provide deeper insights into the
issues that influence refinancing behavior.