About 20 percent of households who would benefit from refinancing are not doing it — and they could be losing out on lessening their mortgage payments by thousands of dollars over the life of the loan, according to a new report from the National Bureau of Economic Research.
In analyzing a large random sample of outstanding mortgages from December 2010, researchers found that the median household could save $160 per month over the remaining life of the loan, amounting to a total savings of about $11,500.
“Despite the large stakes, anecdotal evidence suggests that many households may fail to refinance when they otherwise should,” according to the report. “Failing to refinance is puzzling due to the large financial incentives involved.”
The report found that borrowers may fail to refinance because they are unable to calculate the full financial benefit to them, they fail to see the benefits over time, or the high amount of upfront costs may deter them.
“Our results suggest the presence of information barriers regarding the potential benefits and costs of refinancing,” according to the NBER report. “Expanding and developing partnerships with certified housing counseling agencies to offer more targeted and in-depth workshops and counseling surrounding the refinancing decision is a potential direction for policy to alleviate these barriers for the population most in need of financial education.”