IT IS TIME TO REFINANCE?

Breaking. If American homeowners were to refinance their home loans, they would have an extra $5.4 billion in their pockets but it seems mortgage brokers’ marketing isn’t demanding attention. That’s the conclusion of a study by Bingham Young University economics professor Jaren Pope, who found that 20 per cent of those who could have refinanced when interest rates dropped didn’t. “There’s a potential problem when one out of five homeowners is paying more than they should,” Pope said. “Buying a house initially is a big financial decision. But it’s also financially a big deal to refinance when it’s optimal to do so.” Pope’s study, published in the Journal of Financial Economics, looked at 1 million loans from December 2010 and calculated that the median household could have saved $1,920. So why didn’t those homeowners take action? Pope teamed up with a non-profit and sent letters to homeowners in Chicago offering a pain-free refinancing option, pre-approved with no upfront costs. “Through the nonprofit, we offered homeowners the best-case scenario for refinancing,” Pope said. The letter only prompted responses from 16 per cent and a follow-up study found that 25 per cent hadn’t even opened the envelope and a third intended to respond but didn’t get around to it. “But there seems to be a whole host of behaviors like inattention and procrastination that are preventing people from taking the time now to receive long-term benefits,” added the professor. Source: Mortgage Professional America