Survey discussion: Will You Refinance?
From Early April through June 2007, we asked visitors to HSH.com and HSHMarketTrends.com this question:
"Will you refinance your mortgage this spring?" (See a graph of the survey results).
As it happens, lots of borrowers did refinance in the spring of 2007. The Mortgage Bankers Association of America's weekly survey of applications found refinancing to be the reason for about 42% of borrowers during that time -- a pretty strong number by historical benchmarks, despite tightening credit conditions and lately, higher interest rates.
Our sample for this survey is smaller than usual (responses numbering only several hundred), but the results were telling, nonetheless.
Respondents to our poll were largely satisfied with their existing loans: almost 64% said they would hold onto their present mortgage, with 54% of those responding "No refinance" saying "I've got a great mortgage right now." That's not surprising given the number of low-rate mortgages made in recent years, and almost 37% who were standing pat were doing so because "rates aren't low enough to make a difference." For the remaining 9% of the "no" crowd some problems were evident, including no equity (3.8%), credit and financial deterioration since they got the mortgage (3%), and stiff prepayment penalties (2.3%).
Among the 20% of total respondents who said "Yes, I'll refinance," getting out of an ARM was the number one reason. A resounding 37% hoped to get away from increasing or scheduled-to-increase payments.
Despite concerns about stagnant and even falling home prices, a substantial 28% of those surveyed said they would refinance to tap the built-up equity in their home through a cash-out refinance. While measures of Mortgage Equity Withdrawal (MEW) have slid over the past year, cash-out refinancings continue to provide support to consumer spending, propelling the economy forward.
The rest of the group considering refinancing had varied reasons. Equal amounts (13.4%) said they were looking to rid themselves of a piggyback in favor of a single loan or looking to extend the term of their loan to help a tight budget. About 3% hoped just the opposite, saving long-term interest charges by shortening the term of their loan.
A small but significant bunch wrote to us to say that their credit had improved and that they thought they could get a better rate than they were paying; about 4.5% could probably be counted among the "subprime success" stories missing from today's discussions about troubled borrowers.
For the overall 16% of folks who responded that "maybe" they would refinance, about 38% said they weren't sure if a refi was right for their situation. It's true that it can be a complex decision to weigh costs against "savings" versus against a time horizon or other goal. As with investing, any homeowner with debt needs to have a reasonable grasp of their situation so that they might be able to realize refinancing or loan recasting opportunities as they come along. In that regard, staying in touch with hsh.com on a regular basis may help.
Some 24% of those who said "Maybe" did so because they are secure in their ARM, at least for the moment, because the day of interest-rate-change reckoning is way off into the future. Good for them; like the 38% above, they'll need to keep a keen eye out for chances at any time, even well before their ARMs begin to change.
The rest had disparate reasons for being noncommittal. About 16% were hoping for improvements in income and debts; 11% were thinking about selling and moving -- while another 11% says they're holding fast in hopes that property prices would rise and build some equity before their considered changing the mortgage.
In the end, borrowers refinance for lots of reasons, some which stand by themselves and some which are intermingled with others. We touched on only a small number of the more common ones above, but we always invite visitor feedback to fill us in on the new and different ones which emerge. Perhaps you will, too.
Thanks to all the respondents for taking the survey! Now... why not take our latest survey?
