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.
Scott Mlyn | CNBC
Pedestrians pass a sign advertising mortgages at a Citibank branch in New York.
So what's up with the 13 percent?
"One final piece of the puzzle is the size of the unpaid balance," wrote Boesel. "Small outstanding balances may not be worth refinancing, as the resulting savings would be low."
Boesel found that eligible borrowers with mortgage rates above 7 percent have an average balance of just $53,000. Still, those with rates of 5 to 7 percent had closer to $100,000 in unpaid balances. So would refinancing even that balance make much of a difference?
That depends entirely on what your original loan amount was, explained Chris Boston, a loan officer with Monarch Mortgage in Washington.
"If your original balance was $400,000, yes you can reduce your monthly payment, because your original payment was very big. You also take into account that the closing costs on a $100,000 loan is a lot lower."
If, however, your original loan was at $150,000 and you're now paid down to about $75,000, you're not going to see much savings from lowering the interest rate. Some people are also averse to resetting the timeline, as in if you're eight years into a 10-year loan, maybe you just want to finish paying it off rather than refinancing into another 10-year loan. Either way, it's certainly worth talking to a loan officer, especially now that rates look like they may finally, really move higher.