Despite low rates, many homeowners opting not to refinance mortgages

When mortgage rates fall consistently over a period of years, it is generally expected that homeowners will opt to refinance in an effort to take advantage of better rates.

However, despite the fact that mortgage rates have remained near their lowest point in years, many borrowers have declined to refinance. Specifically, Fannie Mae's Housing Survey found that between 40 and 50 percent of homeowners say they have not refinanced their current mortgages.

Seeking to explain this behavior, Fannie Mae's senior manager of business strategy, Li-Ning Huang, examined two separate analyses of the data.

Huang found that many borrowers cited "life cycle factors" when explaining their past decisions to refinance. These include the number of years they have spent in their home, whether they are married and have a family and their level of education. In addition, some cited "opportunity factors," of which falling mortgage rates are a part.

However, Huang also found that borrowers discuss different motivations when considering future refinancing actions. Among the most prominent mentioned in surveys was risk mitigation. Many borrowers, she found, are concerned about their ability to make debt payments. Some have had trouble refinancing in the past. Others prefer to wait it out, confident that their financial situation will improve in the future.

Huang asserted that "better awareness of one's financial situation could encourage consumers to consider refinancing and to take action."

More information about finances is certainly beneficial for all parties. That's why lenders need to emphasize credit risk management when they consider their borrower's efforts to refinance. In addition, incorporating alternative data sources into the decision making process could further help lenders understand each applicant's financial viability.

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