Tag: refinance


Avoiding costly refinancing mistakes: Knowing when to wait

Serafin Grundl and You Kim recently published a research article in Federal Reserve System’s Finance and Economics Discussion Series on “Consumer Mistakes and Advertising: The Case of Mortgage Refinancing”. The authors estimate the effect of advertising on consumer mistakes and quantify the resulting net effect on consumers in the market for mortgage refinancing. They demonstrated that a policy that redirects all advertising to borrowers who should refinance would appreciably increase the gain in borrower welfare.

Specifically, authors note that mortgage refinance (refi) advertising can help inattentive borrowers who should refinance but fail to take advantage of lower interest rates by informing them. However, refi ads can also be deceptive. Lenders commonly advertise the projected reduction in monthly mortgage payments without pointing out that this reduction is partly achieved through an extension of the loan term, rather than through a reduction of the interest rate. Such ads have the potential to convince borrowers who should wait to refinance prematurely.

The article truly reverberated with the STEM Lending team: we at STEM Lending are committed to helping our clients make rational financial decisions and be a trusted advisor to them, striving to help them make the right decisions concerning their mortgage at the right time.

In coming months, we will continue to publish a series of STEM Perspectives, helping demystify the mortgage landscape. Stay tuned and feel free to reach us on Facebook (https://www.facebook.com/STEMLending), Twitter (https://twitter.com/STEMLending) or via email at hi@stemlending.com if you have anything to share!

Reference: Consumer Mistakes and Advertising – The Case of Mortgage Refinancing


Hassles of refinance causing 4 million homeowners leave over…

Despite falling mortgage rates and rising home values, millions of home owners are not refinancing because of the hassle of a refinance. According to a new report by Black Knight Financial Services, close to 4.5 million borrowers are eligible and have financial incentive to refinance. Refinance applications, however, remain 30 percent below year-ago levels.

Lynn Fisher, Mortgage Bankers Association’s Vice President of Research and Economics noted: “The recent pause in the upward movement of interest rates continues to encourage late-to-the-game borrowers to refinance”

Mortgage rates do not directly follow interest rate hikes by the Federal Reserve but are linked to the yield on the 10-year Treasury, which can move on other economic factors both in the U.S. and overseas.

Ben Graboske, Senior Vice President of Data and Analytics at Black Knight Financial Services noted “There are enough pressures in the market — lenders getting more efficient — that we’re going to have competitive rates around for a while.”

Source: CNBC.

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