Even with record low mortgage rates, refi's aren't flying out the door at banks and mortgage companies.
Mortgage rates dropped to another record low this week following the Fed's move to pump hundreds of billions of dollars into the U.S. economy. Though officials hope that buying Treasuries with newly-printed money will give the slow-growing economy a big boost, the move likely won't give today's homeowners much relief.This got me to wondering about farmland refinancing. Even though it has been widely advised by ag business gurus, I can't find any good stats (outside the Farm Credit System) to show farmers are leaping to lock in low long-term rates. Anecdotal data from around here seems like they are: it takes several weeks to get a title policy done because they are backed up with refi's.
Now is one of the cheapest times in decades to finance a home, but few are actually locking in record low mortgage rates. This isn't just because many don't qualify for refinancing as home prices plummet and banks continue to enforce tighter lending standards.
It's also because many owners who locked in relatively low rates between 2003 and 2005 don't think it's worth refinancing, according to a U.S. Federal Reserve study of the mortgage market released in September. This is a factor that has largely been overlooked. [More]
But if the number is smaller than rates would seem to suggest (i.e. the savings are significantly greater than the costs of refinancing), I think I can guess some reasons holding guys back.
- Loan-office aversion. On the whole we would just as soon not borrow any money, and even if we have a good relationship with our lender(s), it is not a transaction we enjoy. There may need to be a powerful incentive to get us to initiate the always emotionally fraught moments in the bank.
- Lender reluctance. You can sure bet your lender isn't going to trade a higher rate mortgage for a much lower one spontaneously. Hence the trigger is tripped only when faced with the loss of the mortgage by you going somewhere else for your money. But it is important to remember bankers face the same tricky calculation when interest rates are rising.
- Personal ties. A good lender becomes a close adviser and often one of your best friends. Even mildly adversarial conversations ("I've had an offer from another lender") seem to put a real chill in the air.
- Ignorance. Many farmers may not know where interest rates (especially long term) are as they don't read much or talk to friends about money. And even if they do, they may not be able to calculate the savings or analyze the possibilities with any confidence. Maybe they've always left it up to their banker.
- Pure laziness. Lookit, prices are good. I'm making my payments. Why stir up trouble or make more paperwork for myself? Besides not all my bank experiences have been happy ones.
- Still not low enough. I'll bet there are a few holding out for 2%/30-year fixed mortgages.
- Only X years left anyway. [Where X<5] I'll bet some guys my age can see the end of the tunnel and the trade-off may be worth it, but inertia is pretty powerful.