Still Paying High Rates

Despite record-low mortgage interest rates available for the past few years, far too many borrowers are holding onto high-interest loans.

That’s the alarming conclusion of a recent CoreLogic study, which reveals that approximately 69 percent of American homeowners had mortgage interest rates higher than 5 percent and a third had rates exceeding 6 percent. Additionally, 84 percent of underwater borrowers are paying more than 5 percent, while a full 50 percent of them pay higher than 6 percent.

Drew Grandi, loan originator for Poli Mortgage Group in Boston, says there are three main possible causes: the decline in property values in most major markets that has left about 30 percent of current homeowners with underwater mortgages; loan products offered before 2008 that allowed borrowers to buy homes without documenting income; and more stringent loan requirements today that often prevent these high-rate borrowers from refinancing.

“There are a vast number of individuals who can no longer qualify for what they currently own,” says Steven Alexander, president of Private Mortgage Services in Atlanta. “They, unfortunately, are trapped in a cycle which will only change when... they can secure employment at a pay grade comparable to when they purchased the home.”

Homeowners with high rates should learn if they qualify for refinancing. If your mortgage is owned by Fannie Mae or Freddie Mac and originated prior to May 2009, for example, you may qualify for the government’s Home Affordable Refinance Program.

Or, if you have a high-interest jumbo loan, you may want to consider splitting it into two loans, Grandi says. A $525,000 jumbo loan, for example, could be split into a $417,000 first loan and a $108,000 home equity line of credit second loan; you may be able to refinance your first loan into a conforming 30-year fixed loan around the 3.25 percent level.

“Don’t give up on refinancing. Form a relationship with someone who is knowledgeable in the industry, and have them mentor you through the process. Guidelines, values and credit criteria change often, so revisit the process every six months,” Alexander says.