Who is Refinancing, and Why is it Important?

In a year when “home” took on multiple roles as a place of shelter, well-being, learning and work, millions of homeowners took advantage of historically low mortgage interest rates in 2020 to save thousands of dollars by refinancing their homes.

In fact, Freddie Mac research shows that, on average, homeowners who refinanced their 30-year fixed-rate mortgage in 2020 will save over $2,800 dollars annually and reduce their interest rate by a full percentage point.

But a closer look at who is refinancing demonstrates that many homeowners who could benefit from a refinance still aren’t pursuing the option.

When comparing 2020 to prior refinancing waves, we see a significant difference in refinance activity and savings between low- and high-income homeowners. In fact, between February and June of 2020, high-income households saved 10 times more than those with lower incomes by refinancing more frequently.

Geographically, the counties hit hardest by the pandemic also saw some of the largest refinancing income gaps. And in terms of health and economic implications, the pandemic continues to impact communities of color disproportionately, leaving them less likely to refinance.

The refinancing gap in communities of color is also deepened by factors such as income and employment shocks, access to financial education and differences in information networks that tend to be resources for refinancing. The implication of these complex economic factors is that many low-income homeowners may be missing out on savings from refinancing.

Entities like Freddie Mac, in partnership with the mortgage industry, are focused on creating more equitable access to housing finance. By bringing attention to these disparities, our goal is to increase access to the savings opportunities available through refinancing.

We are rolling out a robust plan designed to engage housing counselors, lenders, loan officers and real estate professionals – and to enlist them in helping us increase awareness of refinancing opportunities for all homeowners. By highlighting the disparities we’re seeing in the market and making educational resources available, the goal is to help homeowners understand the process and benefits of refinancing. The housing ecosystem can also support this goal by joining us in raising awareness of the benefits and availability of refinancing.

The good news is that if you are one of the millions of homeowners who can still benefit from refinancing your mortgage, it’s not too late. Here are a few things to keep in mind. First, shop around. Our research shows that shopping around for multiple offers could save an average of $1,500 over the life of the loan by getting one additional quote and an average of about $3,000 for five quotes. Second, understand that refinancing can take some time, so it’s important to stay in touch with your lender. This is particularly the case in the current environment, as many homeowners seek to take advantage of low interest rates. Third, we recommend homeowners review their credit report before refinancing. Homeowners can visit this link and request their credit report at no cost.

Freddie Mac has a longstanding commitment to providing consumer education to help borrowers understand mortgage refinancing. Homeowners can review resources about understanding whether a refinance is right for them through Freddie Mac’s MyHome consumer Refinancing Resources. There, you can be connected to borrower help centers and housing counselors, online credit education and calculators to crunch the numbers.  With some help and the right resources, you may find some great savings in your home.