Here's why some homeowners skipped the refinance boom — and don't regret it

As mortgage rates remain well above 5%, it seems homeowners who had the chance to refinance into historically low rates in the last two years but didn’t must be kicking themselves.

Instead, many probably made a financially savvy move, according to experts.

Nearly one-fourth of all homeowners refinanced their mortgage in 2021, according to data from the Federal Reserve Bank, when mortgage rates dropped below 3%. That refi boom is over, with activity falling to the lowest level since 2000, according to the Mortgage Bankers Association, leaving the 14.6% of homeowners with a current rate above 5% without many options.

“There are a lot of reasons why people don’t refinance,” Keith Gumbinger, vice president of HSH.com, told Yahoo Money. “You might find that loan amounts are too small to be bothered with, or you might be thinking about selling at some point in the future.”

Changing circumstances

Life happens and that can change your financial situation from where it was when you first purchased your home. For instance, a couple may have bought soon after marrying when they both had paying jobs. Five or six years later, things may look different and refinancing may not be in the cards even if rates are under 3%.

“You’ve since started a family and only one spouse is working or the other isn’t working full time to care for the child,” Gumbinger said. “Now your income might not even be enough to qualify you for the mortgage you’re already paying.”

Too small loan

Even if you want to refinance, a lender may not be interested because the outstanding balance is too small. “[The] paper work’s the same for a $1 million loan,” Gumbinger said, “but not nearly as profitable.”

Plus, what you would save overall on interest wouldn’t be as much with a smaller loan balance.

Planning to sell or tap

Another “not-worth-it reason,” according to Gumbinger, may be when a homeowner plans to sell in the next year or two, so there’s little chance to get any benefit from a refinance.

“Depending on costs or the difference in monthly payment, there’s a chance that the refi can be a money-loser, too,” he added.

Similarly, older borrowers who intend to take out a reverse mortgage at some point soon — available to homeowners over 62 — may also want to avoid a refi no matter where rates are because the process pays off the existing loan and leaves no monthly payments.

The math doesn’t make sense

At least 15.2% of existing homeowners have a mortgage that’s over 10 years old, the FHFA survey found. Another 27.5% are right at the middle – with mortgages between 4 and 10 years old

“When you are well into the principal repayment portion of your loan — that is, you have far fewer than 30 years remaining on the term — almost the only way to achieve savings is to select a term that is only about as long as the remaining term or slightly longer, provided there is still a break in the interest rate compared to the existing loan,” Gumbinger said, “or to get a significantly lower interest rate compared to what your existing loan has.”

You also have to consider your break-even point – or the amount of time it will take you to recoup your new loan’s closing costs — along with balancing what your monthly payment will be with the total interest you’ll pay over the life of the loan.

“Even with a lower interest rate, it can sometimes be difficult to overcome the costs of restarting the loan all over again — paying for a home for 37 years instead of the 30 you may have started with, for example,” Gumbinger said. “A lower payment may be the outcome of a refinance, but at the cost of a higher total interest charge.

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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