Even as mortgage rates remained near 3-year lows last week, refinance applications fell back 7 percent for the second week in a row, according to the Mortgage Bankers’ Association. As mortgage rates have remained low and home values have increased, many U.S homeowners have been put in the prime position to refinance their mortgage but many are also missing out on the opportunity.
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At the end of 2015, there was $4.2 trillion in tappable equity available to U.S. mortgage holders.
According to Black Knight Financial Services’ December Mortgage Monitor Report, the amount of tappable equity had increased by 17 percent year-over-year at the end of 2015. Approximately half of all that $4.2 trillion in tappable equity belonged to borrowers with current mortgage rates higher than 4 percent.
More than 7 million homeowners could potentially benefit from a refinance.
Of the 5.2 million homeowners with 30-year mortgages, nearly half could still save $200 or more per month, according to Black Knight Financial Services.
Hundreds of thousands are also eligible to take advantage of the FHA Streamline Refinance, which bypasses an appraisal, qualifying debt ratios and income verification for current FHA mortgage holders.
So why aren’t homeowners jumping on the refi bandwagon?
Borrowers who have yet to take advantage of low interest rates may be abstaining for several reasons. According to a 2015 Fannie Mae survey, only 37 percent of mortgaged homeowners believed they had at least 20% equity in their homes. On the contrary, it was estimated that of those surveyed, at least 69 percent of those homeowners have 20+ percent equity in their homes. Though home values have increased, many borrowers are still spooked by the plunging home values of the recession, according to Freddie Mac.
So who should refinance?
Generally speaking, at least one of the following conditions should be present when you are considering refinancing your mortgage:
- Mortgage rates have decreased/are decreasing
- Home values have significantly appreciated
- You’ve been making payments on your original 30-year mortgage for less than 10 years (the majority of your payments in the early years of your mortgage are going toward interest during that time period)
Refinancing basically means starting your financing process over, so your refinancing goal is also a factor. Are you trying to reduce your monthly mortgage payment, shorten your term or cash out your equity to use elsewhere?