According to an article in Housingwire, recent research has shown that many homeowners are failing to take advantage of lending programs that could be hugely beneficial to them. It’s estimated around 20% of households who could benefit from refinancing are potentially missing out on savings of over $10,000 each year, simply by failing to take action.
The study was carried out by the National Bureau of Economic Research and looked at a random sample of US mortgages in December 2010 and found that while people are able to take action to buy and finance a property many households are failing to take the next step which is to refinance the loan. While it might seem puzzling that homeowners are willing to miss out on such substantial savings, the National Bureau of Economic Research has identified three reasons why this occurs.
The first is that it is often difficult for borrowers to calculate the type of benefits available through refinancing. This is often due to the complex transactions required combined with the limited experience that most borrowers have with this situation. In addition, sometimes the benefits of refinancing the loan aren’t immediately apparent but tend to build up over a longer period of time. Some borrowers may be put off by the amount of upfront costs that must be factored in when refinancing a loan and which may include valuing the property and reevaluating their personal financial situation.
According to the study the average household could save around $160 a month for the remaining period of their loan, and the total savings for around 20% of borrowers were approximately $11,500. The hope is that providing more targeted information could enable greater numbers of people to take advantage of these savings. Apparently homeowners who work with certified housing counseling agencies are far more likely to be able to make money-saving changes to their mortgage, and are around 60% less likely to default on their loan. When necessary these borrowers can also complete short sales more quickly compared to homeowners who don’t work with housing counselors.
The article in Housingwire goes on to point out that the Federal Housing Finance Agency recently began a public campaign and has targeted cities that have the highest number of borrowers who haven’t yet taken advantage of a Home Affordable Refinance Program. In addition, Fannie Mae recently announced that it is updating its policy concerning the minimum waiting period following a pre-foreclosure sale which should make it easier for these borrowers to purchase another home more quickly.