Millions of Americans Miss Out on Best Mortgage Rates

Posted by  on Oct 07, 2010

Best Mortgage Rates Ignored

Everyone knows that for over a year Americans have had access to some of the lowest mortgage rates in history. And yet the Wall Street Journal reported recently that, by failing to refinance, millions are missing out on billions of dollars that could be saved every year.

Earlier in the year, the Journal quoted research from Credit Suisse, a global investment bank. This suggests that about 37% of those with 30-year conforming fixed-rate mortgages are currently paying at least six percent for their home loans. And many of those could reduce their rate by a full one percent, or even more, by refinancing.

Mahesh Swaminathan, a senior mortgage strategist at Credit Suisse, told the Journal: "Traditionally, these borrowers would be aggressively refinancing."

Why Not Refinance?

So why aren't they? Of course, it's not just inertia or apathy that's stopping many. Roughly a quarter of mortgage borrowers have loans that are "underwater" (the balance outstanding on the mortgage is higher than the value of the home), and for many of them refinancing is simply impossible. Lenders generally require collateral before they'll grant a mortgage.

Others may be put off by the whole mortgage refinance process by high fees. For those with less than perfect credit, these can total two percent or more of the loan value. Though--unless they require a cash-out refinance--most will pay something between that and the 0.25% that someone with good credit and a low loan-to-value (LTV) ratio would have to find.

But fees shouldn't in themselves put off those considering refinancing, not least because they can usually be added to the mortgage loan. And it's not too difficult to work out, using a mortgage calculator, whether the long-term savings justify the fees.

Experts Back Refinancing Now

The New York Times ran a feature about how best to protect yourself against future bursting financial bubbles, which the writer considered inevitable. His first piece of advice was:

Start with the basics. The less you have to pay toward monthly obligations, the better off you are, and that's especially true at a time of economic disruption. You certainly wouldn't want any bills increasing, so now's a good time to refinance to a fixed-rate mortgage.

Meanwhile, the New York Daily News stated: "If you're in the market for a loan--for a car, home, or business--close the deal sooner rather than later. Mortgage rates, in particular, may start to go up soon." And it continued with advice for those thinking of buying a home:

Does this mean you should rush into a decision? Of course not. But it does mean you can save a bundle by pulling the trigger on a home you've been considering since last year, particularly if you do it before April 30 and cash in on the tax credits available to many home buyers.

Compare Mortgage and Refinance Rates

Current rates remain quite attractive, so compare mortgage rates and refinance deals today.


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