The financial fault that can cost house owners a big money

If you have not refinanced your mortgage yet, you could be leaving 10000 of dollars on the table.

Interest rates have bounced around historical lows for years, yet an amazing number of homeowners who could advantage from a refinancing still have not taken advantage of the possible cost savings. Said in a new Bank rate report issued Monday.

The reasons for that may surprise a lot of us: Some people are simply ignorant of their present rate or do not have the get-up-and-gumption to refinance, expert say.

In 2014, the rate on a thirty-year fixed mortgage averaged 4.24 %. Rates have remained near the bottom, around 3.8 % so far this (2015) year, down from well above 6 % in 2008. The (MBA) Mortgage Bankers Association forecasted that rates might add to to a little too over 5 % by the end of the year.

Even if refinancing a mortgage makes sense financially, there is always a portion of the U.S. population that fails to do so, economists from the University of Chicago and Brigham Young University found in a latest working paper for the National Bureau of Economic Research.

In December 2010, approximately 20 % of households that appear unconstrained to refinance and were in a position in which refinancing would have been useful had failed to do so, according to an NBER working paper called Failure to Refinance.

While refinancing does not always make sense for everybody, homeowners can find out pretty simply whether it’s the right choice for their situation by doing some fast math.

Refinancing a thirty-year fixed-rate mortgage of $200,000 from 6.5 to 4.5 % will save more than $80,000 in interest payments over the life of the loan, even after taking into account typical refinancing costs, With long-term mortgage rates at roughly 3.35 %, this same household would save almost $130,000 over the life of the loan by refinancing. 

That is several 100 of dollars every month: Refinancing a $200,000 30-year loan from 6 % to 3.8 % would save $267 a month, according to Bank rate calculations. Refinancing it from 8 % to 3.8 % would save $536 a month.

Beyond not knowing about the potential savings, many homeowners aren’t aware of the interest rates on their loans or the details have gotten away from them in their day-to-day scramble that’s one of the reasons they have ignored the current low interest rates.

As clients, once we get the mortgage, we sweep the rate under the rug and we do not worry about it. “So we do not look at rebalancing or refinancing opportunity.

A Bank rate survey found that only 65 % of homeowners said they are very confident they know their rate, while more than one third of borrowers are only somewhat confident, not confident or just say they do not know their rate at all.

There may be information barriers concerning potential reimbursement and costs of refinancing, the economists wrote, extra that psychological factors, such as procrastination, mistrust and the incapability to understand complex decision may also be barriers to refinancing.