The average rate on the popular 30-year fixed mortgage has been so low for so long that a good chunk of borrowers can't even contemplate the idea of it ever going higher.
Why should they? Every time we warn of rising rates, or see a tiny bump up, some global economic tantrum pushes them back down. Most borrowers have refinanced to take advantage of these low rates, but, strangely more than 1 in 10 have not. These borrowers have rates above 5 percent, while the rest of us sit around 3½.
If you really want to get technical, almost one-quarter of borrowers have rates above 5 percent, but a lot of them cannot refinance. CoreLogic economist Molly Boesel ran the numbers and found the following reasons why so many are shut out of the savings.
First, about half of the mortgages with the highest rates either are or have been delinquent at some point, and that means lenders will not refinance them to the lowest rates. The risk is simply too high.
Second, mortgages that are held in private-label securities are much harder to refinance than loans backed by the government. After the housing crash, the government instituted streamlined refinance programs, which included underwater borrowers. That takes the share of borrowers who are missing out down to 13 percent.