According to studies a recent drop in interest rates will prompt about 18% of all U.S. households with mortgages to refinance this year. For a person with a $230,000 mortgage, refinancing to a 4.75% rate from 6% would yield savings of about $180 a month.
As a result of that refinancing surge, new U.S. first-lien home-mortgage loans granted this year will surge to $2.78 trillion, up 72% from 2008's depressed level. The expected 2009 total includes refinancings of $1.96 trillion and home-purchase loans of $821 billion.
The Federal Reserve last week proposed to spend as much as $1.25 trillion to buy mortgage securities in 2009. The Fed also is buying long-term Treasury bonds to push down rates on those securities. The purchases of mortgage securities provide funds for banks to lend to homeowners.
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