Are Customers Still Interested in Refinancing?
With rates at historic lows, it would seem like customers would be highly motivated to refinance their homes. But are they? The answer is a complicated one. According to a recent survey by Bankrate, 74% of homeowners have not refinanced despite strong market motivators to do so. The survey found several reasons why, which we have listed below, along with some ways that you may overcome these obstacles and objections:
Customers have not refinanced because they:
Believe They Wouldn't Save Enough to Be Worthwhile: Some 32% of those surveyed listed this reason as why they have not pursued a refinance opportunity. Often even a small drop in a homeowner's monthly payment can add up over time. As the article states, a reduction of $167 per month in a mortgage totals up to $2004 over a year. So, putting a potential refinance in terms of savings in the long run is a good way to encourage a homeowner to take advantage of the situation.
Thought Closing Costs Are Too High: Of those surveyed, 27% believed that closing costs would be prohibitively high for them to initiate a home refinance. While closing costs can be expensive, a lower monthly payment will eventually allow the homeowner to save more than the cost of closing. Often closing costs can be financed into the loan, with little to nothing out of pocket. Reminding customers of their available options can help them make a more informed decision.
Don't Know Their Interest Rate: As many as 32% said that they weren't sure what their interest rate was on their current loan. Without that knowledge, it's not clear what they could save by refinancing to a lower rate. This is easily fixed; the homeowner can either look on their monthly statement or contact their mortgage service provider. Explaining how the drop of even a single percentage point can save them money over the course of their loan is an ideal way to educate your customers on the advantages of refinancing.
View Their Loan Through a Lens of Age and Income: As you might imagine, responses varied differently depending on the respondent's age group and income level. Here's how it breaks down:
· 28% of millennials (ages 25 to 40) have already refinanced. Contrast this with 17% of Gen X (ages 41 to 56).
· Only 17% of baby boomers (ages 57 to 75) have refinanced.
· Baby boomers tend to think that refinancing will not save them money.
· Gen Xers are more likely to think closing costs are their biggest obstacle.
· Homeowners with a household income of $50,000 or above are almost twice as likely to refinance, though only 24% have done so.
· Those with a household income below $50,000 were only 13% likely to refinance their homes.
As you can see, despite record-low interest rates, there is an enormous untapped potential in the refinance market. The kinds of hesitation shown by the survey respondents seem to stem from a lack of information on the benefits of refinancing as well as a lack of knowledge on the options available to them. The rates won't stay this low forever, so consider the window of opportunity refinancing represents as limited and take steps to act while you can.
So, that's it for this time. Thank you for your attention, and we'll see you next time.
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