Mortgage Refinance – May Be A Smart Move With Recent Record Low Rates
Sharon L. Secor
December 19, 2008
The Federal Reserve cut interest rates again, and according to some press reports, the new rates have sparked a bit of a refinancing surge among consumers eager for a way to shave a bit from their monthly mortgage payment. By refinancing, some homeowners are able to reduce their monthly mortgage obligation significantly. That is part of the purpose of the rate cut, to free up some money for consumers in hopes that they will pump that right back into the economy via consumer spending.
On Tuesday, December 16, 2008, the Federal Reserve moved to cut interest rates again, a significant move, as the degree of reduction was record setting. According to a Reuters article from December 17, 2008, short-term interest rates were decreased to levels that approached zero percent, which "sliced the yield on 10-year Treasury notes, a peg for fixed mortgage rates, to its lowest level since 1951." That action on the part of the Federal Reserve produced quick results, according to national news reports.
"Freddie Mac said Thursday that the 30-year fixed-rate mortgage fell to its lowest average in 37 years. The average rate fell to 5.19% with an average 0.7 point for the week ending Dec. 18, down from 5.47% last week and 6.14% a year ago," reported MarketWatch.com on December 18, 2008. MarketWatch.com cited a statement given by a chief economist of Freddie Mac, Frank Nothaft, in which he said that the current rates were "the lowest since the survey began in April 1971."
With rates lowered to such a degree, many homeowners sprung into action, seeking to refinance their mortgages at a lower rate. Many people who were hovering at the edge of the housing market have decided to take the plunge and buy a home, locking in a fixed rate mortgage at the current low rates. News reports from across the country indicate that mortgage brokers throughout the nation are reporting an increase in activity.
"We're going to see just a massive refinancing boom," said Mark Zandi, chief economist at Moody's Economy.com, who estimates that up to 10 million U.S. borrowers, or about one in five Americans with a mortgage, could wind up refinancing," as reported by the Associated Press on December 17, 2008. According to a report published on December 18, 2008, by DNRonline.com , the Mortgage Bankers Association, a well-known industry group, there has been a very recent increase in refinancing requests of about 203 percent.
Refinancing can be a smart move for some homeowners, depending upon what their goals are in refinancing and what their current mortgage status and agreements are. Unfortunately, this may not be an option that is available for those already struggling to meet monthly obligations, as in today´s tighter credit market, the best interest rates tend to go to those with better credit scores. However, for those that have managed to maintain their credit standing, despite the difficulty of the times, especially those hoping to make the switch from a variable interest rate or ARM, mortgage refinancing now may be the right move at the right time.
While it may be more difficult to refinance a mortgage in a way that allows cash to be taken out, that type of refinancing agreement may not really be the smartest option right now anyway. Two money smart means of refinancing in today´s climate, as pointed out in a December 17, 2008, article in the Grand Island Independent, are to either refinance and keep the same monthly payment, shortening the duration of the loan and reducing the total amount of interest paid, or refinancing and keeping the duration of the loan at the same number of years, but reducing the monthly mortgage payment.
While the Federal Reserve and the government are hoping that consumers choosing to refinance as a means of reducing their monthly mortgage payment will put that money right back into the economy by increasing their spending, that may not be the wisest course of action. Those using mortgage refinancing to reduce their monthly payment may be better served by using that money to pay down other debt, such as high interest credit card debt, as quickly as possible, because many of today´s economic indicators seem to show that the trouble in the economy is not going to go away any time soon. Reducing debt burdens will help you to have a bit more financial freedom of movement, allowing you to better manage the economic challenges to come, especially if we are heading into a deflationary cycle .
It seems that in today´s economic climate, paying attention to what is going on in the realm of high finance and big business can have a direct affect on the financial well being of the average consumer. Learning more about the broader economic world, such as how the decisions of the Federal Reserve can affect you individually may help you to make better personal finance decisions, improving both your financial present and fiscal future.
On Tuesday, December 16, 2008, the Federal Reserve moved to cut interest rates again, a significant move, as the degree of reduction was record setting. According to a Reuters article from December 17, 2008, short-term interest rates were decreased to levels that approached zero percent, which "sliced the yield on 10-year Treasury notes, a peg for fixed mortgage rates, to its lowest level since 1951." That action on the part of the Federal Reserve produced quick results, according to national news reports.
"Freddie Mac said Thursday that the 30-year fixed-rate mortgage fell to its lowest average in 37 years. The average rate fell to 5.19% with an average 0.7 point for the week ending Dec. 18, down from 5.47% last week and 6.14% a year ago," reported MarketWatch.com on December 18, 2008. MarketWatch.com cited a statement given by a chief economist of Freddie Mac, Frank Nothaft, in which he said that the current rates were "the lowest since the survey began in April 1971."
With rates lowered to such a degree, many homeowners sprung into action, seeking to refinance their mortgages at a lower rate. Many people who were hovering at the edge of the housing market have decided to take the plunge and buy a home, locking in a fixed rate mortgage at the current low rates. News reports from across the country indicate that mortgage brokers throughout the nation are reporting an increase in activity.
"We're going to see just a massive refinancing boom," said Mark Zandi, chief economist at Moody's Economy.com, who estimates that up to 10 million U.S. borrowers, or about one in five Americans with a mortgage, could wind up refinancing," as reported by the Associated Press on December 17, 2008. According to a report published on December 18, 2008, by DNRonline.com , the Mortgage Bankers Association, a well-known industry group, there has been a very recent increase in refinancing requests of about 203 percent.
Refinancing can be a smart move for some homeowners, depending upon what their goals are in refinancing and what their current mortgage status and agreements are. Unfortunately, this may not be an option that is available for those already struggling to meet monthly obligations, as in today´s tighter credit market, the best interest rates tend to go to those with better credit scores. However, for those that have managed to maintain their credit standing, despite the difficulty of the times, especially those hoping to make the switch from a variable interest rate or ARM, mortgage refinancing now may be the right move at the right time.
While it may be more difficult to refinance a mortgage in a way that allows cash to be taken out, that type of refinancing agreement may not really be the smartest option right now anyway. Two money smart means of refinancing in today´s climate, as pointed out in a December 17, 2008, article in the Grand Island Independent, are to either refinance and keep the same monthly payment, shortening the duration of the loan and reducing the total amount of interest paid, or refinancing and keeping the duration of the loan at the same number of years, but reducing the monthly mortgage payment.
While the Federal Reserve and the government are hoping that consumers choosing to refinance as a means of reducing their monthly mortgage payment will put that money right back into the economy by increasing their spending, that may not be the wisest course of action. Those using mortgage refinancing to reduce their monthly payment may be better served by using that money to pay down other debt, such as high interest credit card debt, as quickly as possible, because many of today´s economic indicators seem to show that the trouble in the economy is not going to go away any time soon. Reducing debt burdens will help you to have a bit more financial freedom of movement, allowing you to better manage the economic challenges to come, especially if we are heading into a deflationary cycle .
It seems that in today´s economic climate, paying attention to what is going on in the realm of high finance and big business can have a direct affect on the financial well being of the average consumer. Learning more about the broader economic world, such as how the decisions of the Federal Reserve can affect you individually may help you to make better personal finance decisions, improving both your financial present and fiscal future.
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