Homeowners and Their Money: A Strange Relationship


Maybe it’s just human nature, but as long as interest rates remained low, millions of Americans have opted not to refinance their mortgages — many of whom have higher rates. Experts estimate over 5 million borrowers could potentially qualify for and benefit from a loan refinance.

With current rates hovering just below 4%, roughly 2.4 million homeowners could save $200 or more on their monthly mortgage payments, while another 1.9 million could save between $100-$200 per month. That comes to nearly $1.2 billion in collective savings.

Mortgage experts warn that if interest rates rise by a half-point, 2.1 million borrowers probably won’t be able to refinance because there will be little, if any, benefit. A one-point rate increase would probably eliminate an additional million borrowers. The moral to the story: Act now if you’re thinking of refinancing. Rates are expected to gradually rise during 2016 — not necessarily as a result of the Federal Reserve’s policies – but due to employment growth and an improving economy.

With the recent rise in home values, millions of Americans have found their mortgages are no longer “underwater,” making them eligible to refinance. Also, a government-backed refinance program, HARP, is available for those homeowners who still owe more money on their mortgage than their home is worth. Estimates are that nearly 450,000 borrowers could benefit from a HARP refinance.

The increase in home values has also provided borrowers with more home equity at their disposal. That equity is available in the form of a home equity line of credit, or HELOC. Although the underwriting standards are tighter than they once were, HELOCs have relatively low interest rates. Experts say their popularity is on the rise, up 35% in 2015 from the previous year.

It is estimated that today’s homeowners have an aggregate of $4.2 trillion in available home equity — an increase of over $600 billion in the past year. Roughly 37 million borrowers, if they so choose, could access an average of $112,000 and still maintain a comfortable loan-to-value (LTV) ratio to satisfy their lenders.

While refinancing a primary mortgage is often dependent solely on the interest rate, borrowers are still originating HELOCs at slightly higher rates. Experts say even though most borrowers elect not to refinance at a higher rate simply to access their equity, some still do. Approximately 23% of cash-out refinancing during the last six months were for that sole purpose. However, HELOCs seem to be a more promising — and more popular — alternative for most homeowners looking to access their available equity.

Today’s homeowners seem to be more conservative and cautious when it comes to their home equity. They are using equity primarily to reduce debt or for home improvements, as opposed to purchasing “luxuries” like vacation homes, boats and cars as they once did.

Many homeowners have witnessed firsthand the volatility in the housing market. They’ve seen values artificially inflated, and many have experienced loss in home equity. As a result, they have a greater appreciation for home equity — and they know how fickle the market can be.

Homeowners and their money… it’s an interesting — and sometimes strange — relationship.


ALCOVA Mortgage, LLC

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