Top 4 Obstacles
Water, water everywhere, but nary a drop to drink.
–Samuel Taylor Coleridge, “The Rime of the Ancient Mariner”
Substitute “money” for “water” and you have a good sum-up of today’s lending environment.
With mortgage rates at record lows — around 4.75% for a 30 year mortgage — you’d figure that anyone paying, oh, say, 6% or higher would refinance.
But that’s not what I’m hearing from the lenders I talk to.
Anecdotally, here are the top 4 reasons — at least according to the lenders — why many refinancing candidates . . . don’t. (To get the real scoop, I suppose you’d have to survey the non-refinancers.)
Refinancing a mortgage requires pretty much the same rigamarole as getting a purchase-money mortgage: applications, W-2’s, income tax returns, etc. Some people never get around to it — or peter out halfway through.
Two. Pain avoidance.
Of course, the big piece in any refinancing is the appraisal. Which means facing how much your home may have dropped in value since you purchased it.
Just like no one wanted to open their monthly brokerage statements a year ago, lots of homeowners now apparently don’t want to confront current housing prices.
Which leads to . . .
Three. Sense of Futility.
In fact, a tighter lending environment makes it objectively harder to refinance (“Interest Rates Are Low, but Banks Balk at Refinancing” — The New York Times; 12/12/09).
Who’s shut out?
Homeowners who put little down and whose home values have been whacked — and therefore lack the collateral banks require (see appraisal, per above); anyone who’s lost their job; and anyone whose credit scores have been beaten up during the recession (south of mid-600’s is a big problem).
There are rational reasons for not refinancing, too.
If you’re going to move in a few years, you probably won’t recoup the 3% or so it can cost to refinance.