During 2009 refinancing swept the mortgage industry, but this year refinancing has slowed, even though interest rates still remain at record lows. According to the research firm First American Core Logic, over half of all homeowners with mortgages still carry home loans with interest rates above 6 percent even though rates sill hover around 5 percent. In most cases, it is not that these homeowners don’t want to refinance but rather that they are unable to.
Challenging homeowners are a number of variables. Many homeowners have made attempts to refinance, only to be hit with frustrating road blocks. With the economic downfall, many home values have plummeted, making it hard for homeowners to refinance. Many homeowners are faced with underwater mortgages. Those homeowners that are not upside down on their mortgages are still faced with dwindled home equity that does not leave them in a good spot for refinancing.
Without equity in the home, mortgage providers are hesitant to offer refinancing options. Still, others who had 20 percent or more in their home prior to the downturn allowing them to forgo paying mortgage insurance, now have less than 20 percent invested with a current home appraisal. They are then faced with the decision to keep their current loan or to refinance and pay mortgage insurance.
Another obstacle many homeowners are having is the tightened loan industry of today. Many mortgage companies will not even look at refinancing a loan unless the homeowner has a stellar credit score and history coupled with a low debt ratio. Not to mention that refinancing fees have gone up, making a refinance financially out of reach for some.
Larry F. Pratt, chief executive of First Savings Mortgage, said he has witnessed the challenges up close. “Historically, our rejection rate is less than 5 percent of all our refinance applications,” Pratt said. “For 2009, it was nearly 25 percent.”
Many experts would agree that the lack of refinancing options for these homeowners is actually hurting the economy. If they were able to refinance for a lower interest rate they would have more disposable income, in most cases over $100 more per month. That income could boost consumer spending which is very much needed to help the economy recover.