The Federal Reserve's announcement last week that they would purchase $500 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac created a frenzy of refinancing activity across the country, according to the New York Times. The Times reported that refinancing activity accounted for 69.1 percent of all mortgage applications submitted last week, up from 49.3 percent the week before.
Historic low mortgage rates
The Times reported that the U.S. Treasury had been talking with Fannie Mae and Freddie Mac about ways to drive down mortgage rates to as low as 4.5 percent for a 30-year fixed-rate home loan. I almost fell out of my chair when I read the article. I immediately phoned a friend who's in the market looking for a home and told him the amazing news. That rate is about a percentage point lower than the going rates for such loans.
But before you start banging down the door to your lender's office, the historic low mortgage rates may not be available to everyone. The best interest rates will go only to borrowers in sound financial shape, and even if the efforts go as planned, they may not help the most distressed homeowners. So what does "sound financial shape" look like these days? A credit score of 720 or higher, in addition to having at least 10 to 20 percent of equity in your homes.
The Mortgage Bankers Association (MBA) said its refinance index, which measures refinancing activity, tripled to 3,802.8 last week from the week before. The index was also 37.7 percent higher than in the same week a year ago. It was the largest increase in refinance applications in the survey's 18-year history, though it does not measure how many applications become loans.
Allowance suspended
With the economic downturn and the threat of layoffs looming at many companies across the country, it makes sense more people are trying to be smarter about planning their financial future. The days of buying a new car every other year, investing in homes you can't afford and treating yourself to expensive dinners every night, "just because," are a thing of the past -at least a temporary past. Why it took a sinking housing market, a massive financial meltdown on Wall Street and a recession to finally break people of their spending addiction, is still a mystery to me.
Turn on the television or open a newspaper and 9 out of 10 times you'll see this idea that consumer spending is the cause of economic growth. While I don't completely disagree with this argument, I come from the school of thought that consumer spending is actually the effect of economic growth and that new growth actually comes from saving, investment, productivity and technological advances.
Don't get me wrong; I'm not advising people to start stashing all their cash underneath their mattresses, but I think if people are going to spend they should do it wisely. If you qualify to refinance your home loan into a lower interest rate loan, than take the initiative and do it. If you don't need three cars at home, then sell one of them. Your financial status in life is not defined by the things you own, but how you save and invest.
Got hot local housing tips or a story you want to share? Contact Amy Le at openingdoorsblog@homescape.com
Comments(4)