Homeowners Rush to Refinance High Interest Rate Mortgages

Posted by admin on January 29th, 2008 at 01:38pm

Fed’s mortgage rate cuts have proven effective, at least in the short run, by holding Wall Street and investors in thrall while at the same time creating an urgency for homeowners to refinance their high interest rate mortgages.

As a rule, for a mortgage to be worthy of refinancing, the current interest rate should be 0.40 percentage points or more below the existing mortgage rate. With the current interest rate on a 30-year fixed-rate mortgage at an average of 5.57, it has now made up to 7 million mortgages (or a whopping 70% of US mortgages!) “refinanceable”.

The Mortgae Bankers Association said home mortgage refinancing reached their highest levels since April 2004.  The rush to refinance could get a further boost from President Bush’s Economic Stimulus Package. The package would allow government sponsored Fannie-Mae and Freddie-Mac to buy mortgages worth $729,750. Both Fannie-Mae and Freddie-Mac were bound by a cap of $417,000. This would make refinancing more feasible for owners of more expensive mortgages as well.

Even so, refinancing may prove difficult for homeowners who have witnessed their home either depreciate in value or have little or no equity to support the cost of mortgage refinancing. There are also fears that many banks, still reeling from losses on loans made to sub-prime borrowers, may have lending standards which are now too stringent and taxing for homeowners to qualify for. Especially those who have been struggling to make ends meet and perhaps leaning on their credit card to heavily, and say nothing about those with poor credit scores or others who are facing foreclosure and bankruptcy.

But for homeowners with good credit scores, the issue now may be one of “best-interest-rate-timing“. Many think the Fed, who is holding a two-day meeting starting today, is disposed to further rate cuts which could send mortgage rates even lower.

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Tags: 30 year mortgage, fed rate cuts, mortgage rates, mortgage refinancing

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