Wait for Lower Rates to Refinance?

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. Although there are no rumors yet of offering those rates to those planning to refinance their homes, the consideration of such a proposal is an indication of how bad the real estate market has become. Some economists hope that lower rates and the recent drop in prices will encourage prospective buyers to purchase now, thus breathing some much needed life back into the real estate sector. Others feel that offering lower rates to prospective buyers may not provide the desired boost. Many potential home buyers are hesitant to purchase at a time when the market may not be at a low point. 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. There is not, however, much talk about the majority of homeowners in this country. Many consumers have mortgages in good standing and own equity in their properties. A good number of those mortgage holders would want to refinance their existing mortgages if they were offered low rates. 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 government plan that offers extremely low rates to only buyers, however, would miss an opportunity to stimulate economic movement within the ranks of current homeowners. Homeowners approved for a refinance usually have excellent payment histories, good credit scores and are an asset to the economy.
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. The problem for many homeowners looking to refinance is the decline in home values and the tightening of lending standards. 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. A homeowner that purchased before the housing boom and has substantial equity in his home, however, would be wise to grab the current low rates and hop on the refinance train. The chance at low rates may soon pass.