Wait for Lower Rates to Refinance?
09/15/09
Interest rates for mortgages have dipped lower than what we have seen for quite some time. Additionally, there is talk that the Treasury Department is considering a push to decrease rates offered to those buying homes to below 5 percent. There is no talk about offering those same rates to current homeowners wishing to refinance, but rates for refinance should not trail far behind. Many analysts are hopeful that low rates will kick start the real estate market. Others feel that offering lower rates to prospective buyers may not provide the desired boost. Buyers are still unsure about jumping into the real estate market before it has hit the bottom. Low rates may not be enough, when many are apprehensive due to their decreased investment portfolios and job insecurity.
Most of the news reports rally around the idea of getting potential buyers to start purchasing from the surplus of existing home inventory. But there is little discussion about current homeowners. There are plenty of homeowners that pay their mortgages and have equity in their homes. Those homeowners could benefit from lower interest rates, as many will want to stay in their homes and refinance. The glut of current home inventory would not be made worse by home owners who refinance. Homeowners who refinance usually do so to save money on their mortgage payments. If those homeowners have more money in their pockets, they are more likely to make upgrades and spend money on other items they may not have purchased with higher mortgage payments. Rates for refinance should be included in any government proposal to stimulate the real estate market. A stimulus plan that only focuses on home buyers misses a chance to encourage current homeowners to help kick start the sluggish real estate sector. Those wishing to refinance are often those who have a good payment track record, good credit, and will otherwise help support this economy with solid spending habits.
A good number of consumers looking to refinance are not willing to risk that the rates increase. A report from the Mortgage Bankers Association indicated a 200 percent increase for refinance applications the last week of November. Unfortunately, fewer applications are being approved. Lending standards have become more restrictive and home values have decreased, which has made it difficult for some consumers to refinance. If a consumer purchased a home at the height of the boom and then saw his house value decline, he may no longer have enough equity to be approved for the refinance. On the other hand, those who do have enough equity for a refinance, should consider locking in the low rates now. The chance at low rates may soon pass.
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