Majority Of U.S. Homeowners Paying At Least 5% Interest On Mortgages

While interest rates for 30-year fixed-rate mortgages have been hovering around the 4% mark for around a year — and 15-year fixed loans have dipped below 3% in recent months — nearly 7 out of 10 American homeowners are still paying at least 5% interest on their home loans.

The L.A. Times reports on a new study showing that, through the first half of 2012, 69% of U.S. homeowners were paying 5% or more, with 33% of those homeowners stuck with mortgages higher than 6%.

Homeowners who are underwater on their loans — owing more on their mortgages than their properties are now worth — high interest rates are a particularly bad problem.

The study found that 84% of underwater homeowners are paying at least 5% interest. A full half of underwater borrowers are paying at least 6%.

So not only are these people paying more than their house is worth, they are saddled with significantly higher interest rates than what they could get if they were able to refinance.

But in spite of this, the study found that 84.9% of underwater borrowers have continued to make payments on their loans. However, many of these homeowners will continue to live on the precipice of foreclosure and will unlikely be able to sell their homes, which means they can not relocate for new job or education opportunities.

The Federal Reserve has pledged to buy up billions in mortgage-backed securities in an attempt to keep interest rates low, with the hope that it will spur home-buying and refinancing. But others point out this doesn’t really do anything to assist people stuck with negative equity on their homes.

“The constraint that is keeping people out of the housing market is absence of equity,” the director of the USC Lusk Center for Real Estate tells the L.A. Times. “The drop in house prices means that many borrowers are underwater on their houses… and high unemployment has prevented potential first-time buyers from accumulating down payments.”

In order to get underwater homeowners back up to par, some economists say there needs to be a concerted effort to help these people refinance.

The Times claims that if there are more efforts to refinance underwater loans, lenders stand to make a tidy profit. Because even though interest rates are at very low levels, they would likely be even lower if all those banks that closed in recent years were still around to compete. Refinancing would also get people out of mortgages they can barely afford — and are in constant risk of defaulting on — and into loans that are significantly less risky to investors.

Two-thirds of Americans with mortgages pay 5% interest or higher


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  1. madmallard says:

    There is another reason people havent re-financed their loans.

    There’s a segment of the population that has fallen un-employed or underemployed for multiple years.

    However, they’ve planned correctly and have had enough savings socked away to continue making loan payments.

    So they haven’t foreclosed -yet-.

    But this means they don’t qualify for most modification programs passed thus far.

    And they can’t refinance because they’re unemployed and the bank isn’t interested in cutting them a new loan while they dont have a job.

    • momoftwokids says:

      Yup, that’s us. We can’t refinance because my husband has lost his job and we are stuck at 6%. Mind you, we haven’t missed or made a late payment in over 10 years but that means squat to the bank.

      • Bsamm09 says:

        Another bank won’t do a refi?

        • momoftwokids says:

          Not when our income dropped by 40%.

        • Rachacha says:

          Any bank will also want to re-appraise the home which for many people in this bad housing market means that they won’t be able to get enough money to refinance the house. Most banks will only loan you up to 80% of the home’s value, so even if you are not truly underwater, when you knock off another 20% you might owe more money than the bank will give you. We ran into this problem a couple of years ago when we were looking to increase our HELOC. We owed NOTHING on our home, but after appraisal, we were only able to get about 50% on appraisal of what other homes in the neighborhood were selling for due to the new appraisal rules.

  2. Pre-Existing Condition says:

    I didn’t realize that rates dropped below 3%.

    Our original mortgage was 6.5% for 30 years, we refinanced at 5.1% (20 years) several years ago, and last year at 3.7% for 15 years. When we bought our home, anything in the 6% ballpark was pretty good.

  3. benminer says:

    I’m underwater about 130% percent (loan balance is 30% greater than present home value) and just refinanced from 6.2% to 4.125% with HARP 2.0. The old rule that if you are underwater you can’t do a refi doesn’t apply any more thanks to HARP 2.0. You just can’t have made a single late (30 day) payment in the last 6 months and only one in the last 7 – 12 months.

    There are literally hundreds if not thousands of youtube vidoes about people trying to refi and getting frustrated because their bank won’t work with them or keeps losing documents or other such issues and I have to wonder if any of these people have tried another lender. It’s not like there is a dearth of companies out there who want to fund mortgages.

    • lyontaymer30 says:

      Well, you should always shop around. And you don’t need to be employed to check out a modification. Some refinancing, if you qualify, doesn’t even require job or income verification. But those I’ve seen are usually for people with good credit (700 and above and excellent payment history). I’ve seen some people take out a heloc or equity loan and used it to pay closing costs as well.

    • Rachacha says:

      While not the same situation, we were looking for a construction loan/new home mortgage last year, and after personally going to several banks and striking out, we went to a mortgage broker who was able to use his connections to locate a mortgage, but even he had struggles even though both my wife and I have good jobs and no debt and an excellent credit score/history.

  4. dolemite says:

    I’m trying to refinance now. Everything is approved. We applied back at the start of July. We’ll be going from 5.125 to 3.125. Apparently so many people are refinancing it takes 2-3 months.

    • rgf207 says:

      Ours took almost 4 months because the bank kept stalling. They kept asking for documents that I had produced 2 or 3 times already. Finally went through after I threatened to go to another bank since they were dragging their feet.

      • dolemite says:

        I’m just hoping to be able to skip a payment. I think it’s the least they can do after dragging this thing out, is arrange the start date to fall that way.

        • rgf207 says:

          Normally you will get 1 month where you don’t need to make a payment. It’s usually the month after you close. You don’t actually skip any payments but rather you get to take a month off.

          • dolemite says:

            Yeah…the last time I refinanced that didn’t happen though, because we closed at the very start of the month, right after my payment had gone through.

    • IGetsAnOpinion says:

      It took about a month for me to refinance back in May, only a few weeks for that mortgage to be bought out by Wells Fargo (groan), and then by Fannie May.

  5. BigDragon says:

    I’m not underwater, but I am paying above 5%. I haven’t been able to find a refinance that didn’t charge me $7k to $10k to complete and keep my term the same or reduce it. That combined with higher MIP/PMI premiums makes it not worth the effort to refinance.

    • who? says:

      That’s where we are. Right at 5%, and plenty of income and equity, but we’re within 5 years of paying the house off, and it would cost more to refi than we’d save in lower interest over the couple of years that we have left.

      • StumptownGeek says:

        You might want to rethink what it means to refi.

        There are credit unions offering home equity loans of up to 5 years duration at 1.99% with no closing costs.

        I know – I replaced my mortgage with one of these a few months ago at no increase in principal and my total out-of-pocket cost was the notary public fee.

    • benminer says:

      if you want send me an email benminer AT yahoo and I can tell you who I used. I didn’t pay that much in fees. I don’t think it’s kosher here to plug specific companies.

      • Loias supports harsher punishments against corporations says:

        Sure it is – if you’re not a paid endorser (or say if you are) go ahead and tout a company that worked well for you.

    • Silverhawk says:

      Same situation here. We’re in the mid 5% range, but the cost to refi just about doesn’t make it worthwhile. We’re just going to continue on our plan to pay off early.

  6. sorta savvy consumer says:

    You gotta have good credit to get those lower rates though, and there are a lot of people out there that don’t qualify for a lot of reasons.

    Too much debt probably being the main reason.

  7. PunditGuy says:

    I’m at 6.5%, not underwater (barely) but I haven’t refinanced because I have no interest in paying mortgage insurance and I don’t have a spare $30K sitting around to boost my equity past 20%.

    I suppose I should run some numbers and see if it would be worth it even with the insurance payment.

  8. chiieddy says:

    It’s not just underwater homeowners. I’m not underwater, but my home is decreasing in value since I bought in 2009. Since we don’t have a large amount of equity in the program, refinancing is not an option.

  9. speaky2k says:

    I keep getting letters from my and other banks about re-financing, however I read Consumerist so I know all about the bad things that can happen during re-financing. Since I have read all the horror stories, I am keeping my interest rate where they were since I don’t want to lose my house.

  10. Alan says:

    Just locked in my refi on Monday. 3.25% for the next 27 years. I was at 3.875, but I work at the bank, so it’s worth it.

  11. dush says:

    Banks won’t refinance to people under water.

    • rgf207 says:

      Harp 2.0 allows banks to do exactly that.

      • talonscar says:

        My Mortgage is owned by RI Housing And Mortgage. They’re not backed by Fannie/Freddie, so HARP2 doesn’t apply to them. I’ve heard some info on a HARP3 that will apply, but no idea when/if that will come into effect.

  12. MaytagRepairman is stealing socks while fixing your dryer. says:

    I am underwater and think I am paying a hair over 6%. Looked into HARP 2.0. We would like to do what we can to move in a couple of years even if it means move back into a rental. The credit union would refinance us under HARP 2.0 but wanted to charge us the typical mortgage financing fees and roll them into the loan balance making us underwater even more. It made more sense to just keep making extra payments to principal until we are no longer underwater which is what we have been doing for the past year.

  13. Jevia says:

    We’re at 5.5%, but also can’t refi because we’re underwater. Not by much, but enough that the costs involved in refinancing, assuming the bank would do so for more than the house is currently worth. The closing costs are annoying. They make you do title insurance, even though its absurd to think you’ve got another lien on property already underwater.

  14. Loias supports harsher punishments against corporations says:

    6.25% – because I can’t really afford to add thousands to the loan balance and/or pay thousands in closing costs. Not in this economy, and with my wife not working – and with uncertainly on how long I’ll stay in the home. If both of us can be solidly employed we’d probably move.

  15. Extended-Warranty says:

    Situationals aside, 69% of Americans aren’t underwater, unemployed, etc. People just aren’t smart with their money. I just refinished my home to a 15 year, 2.75% fixed, and nearly everyone I told was flabbergasted that such a thing existed.

  16. SmokeyBacon says:

    We are at over 5% and not quite underwater (close but still just barely above) and we haven’t refinanced because while my credit has improved since we got our original mortgage, the boyfriends went down and he is just starting to improve again. And since my salary is a lot smaller I would guess there is no way it makes up for his credit issues. Add in the fees that would push us from just above to underwater and it just doesn’t make sense to refinance. We are able to pay the mortgage as it is just fine with us for now.

  17. Starfury says:

    We’ve refinanced over the years from a bit over 8% back in 94 to 3.99% now. Because of this our payment is about $300 lower than when we bought the house and that’s with us taking $30k out to do the kitchen. We pay extra every month so it’ll be “ours” sooner.

  18. TheSpatulaOfLove says:

    We’re at 5.25% now and I looked into a refi to take advantage of the lower rates. After doing the math with the closing costs, and SUBSTANTIAL increase in PMI costs, it was not worth resetting to a 30 year for us. Apparently soon after we bought the house in 09, they tripled PMI insurance costs. There’s the chance that I no longer need the PMI, as we have done massive improvements to the home since buying (It was a really rough foreclosure property), but it would cost me $400 to have an appraisal done with no guarantee that the value combined with my equity would exceed the 20% threshold requirement to eliminate the PMI.

    I may try again in the winter. We eliminated nearly all of our revolving debt this past spring (TASTE THE FREEDOM!)**, so maybe a higher FICO would push it over to be beneficial.

    ** Quick plug – using knowledge gained on Consumerist, both from articles and commenters is how we were successful in eliminating this debt. A big thank you to everyone here for helping change the way we think about money!

    • BigDragon says:

      Identical situation here. It only seems to make sense if the PMI/MIP can be eliminated from the loan. All the calculators and loan officers don’t want to talk about those fees.

      • TheSpatulaOfLove says:

        My mortgage guy was pretty frank about it and said it was a zero-sum gain. I was clear to explain that I was seeking a lower monthly payment (to increase cashflow) in the event I was forced to take a lower paying job. Fortunately, it hasn’t happened yet, but my company has short-sighted management that manages by the quarter. :-/

  19. GenXCub says:

    This is my situation in Las Vegas, NV. I’m at 6.25% from a loan in 2007. I haven’t missed a payment, but can’t refi. I know there’s a HARP program that I could take advantage of, but I’ve only read about it from the Fannie Mae site (which is a requirement for HARP, being a fannie/freddie backed mortgage). I need to get a good pros/cons list and then someone to walk through a process. I don’t particularly like my lender, and if someone else could take on the new loan at a better rate, I’d rather see if someone else wants the business.

    • benminer says:

      Very similar situation to mine. The pros are you get better terms. The cons are you will pay some fees but if you shop around you won’t pay as much as most people thing and in most cases it can be rolled into your loan so there is little to no out of pocket. It will also be a substantial time investment. I went with The Money Store on my refi and it was very smooth. Of course they immediately sold my mortgage since that’s how they work but that doesn’t change any of the terms so I don’t care.

  20. Gehasst says:

    4% @ 20 years for me.

  21. RobinB says:

    Anyone still paying 5% or more should call a local, community bank for a refi rate quote. Not a big bank.

  22. akiri423 says:

    As one of those folks paying more than 5% who is NOT underwater – our reason is because we’re not sure how much longer we plan to live in the area, and thus aren’t sure how much longer the house will be ours anyway. We bought when 5% was about the average interest rate (we’re slightly above that) and we are not underwater on the house (a LOT of sweat equity has been built, believe me). If my husband can get into a relatively local PhD program and can keep teaching at a local college or three, then we would likely pursue a refi, provided we’re ever done remodeling and can gather up the cash to do it.

  23. Saltillopunk says:

    I looked into lowering the rate and changing the length of my mortgage a little while back. Basically, I couldn’t get the lowest rate because my house was worth less than the balance. In the end they couldn’t come up with terms that were gave me any advantage. I am better off plowing extra money into the current balance to pay it off sooner.

  24. juggler314 says:

    My loan is at 5% – it’s an FHA loan so it’s easy to refinance, but because I got my loan before the last change to the terms – my PMI is MUCH lower now that it would be on refi. Plus I need to fork over more upfront PMI. basically anything over 3.5% costs me more than my current 5% on a monthly basis. If I was planning on spending the rest of my life in this house it would still be a good idea, but as I’m nearly certain I will be moving sometime in the next few years it’s going to have to stay at 5%.

  25. Sad Sam says:

    We just finished our refi, the gory details are here

    We went from a 4.8% to a 2.75% and went from a 25 year term to a 15 year term. The refinance will save us $180,000 so whoo-hoo to that.

    It absolutely took a very long time, we applied in early July and just closed. The process was onerous, much more documentation required than the last refi we did in 2009. Since we are in Florida we sweated the appraisal and did out best to shine up our home and assisted the appraiser in locating comps.