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Mortgage Applications Way Down After Surge

Posted Thursday, December 11, 2008

Last week a move from the federal government caused interest rates to decrease to a very low rate. Mortgage companies noticed the increase in refinances from traditional home buyers who were taking advantage of low interest rates to save cash flow ever month.

One thing you have to consider when going to refinance a home is that it is not free. It actually cost about 4 percent of the loan amount to close a refinance. This percentage is cost to pay the closing agent, loan agent or broker and possibly some taxes or closing fees.

One week after the mortgage industry saw a surge in mortgage applications for refinances, the application numbers are back to normal. The percentages went from 112 percent to 7.1 percent in one week. Refinances made up over 73 percent of the total applications.

Last month the federal government set a plan to buy 500 billion of mortgage backed securities and another 100 billion of debt issued by government sponsored financiers that have recently been taken over, Fannie Mae and Freddie Mac. This is what caused mortgage rates to decrease so dramatically. Possibly a good move by the government to bring more home buyers into the market.

After announcing the plan the 30 year fixed rate mortgages went from 6.19 percent to 5.57 percent. This small move in interest rates can save or shave thousands of dollars off of a home loan. As long as the rates stay this low, home buyers will be able to afford more home for the money. Especially if they are comparing homes from two years ago to today.

For those people who have homes that they need to sell a house and can not afford their current mortgage, the lower interest rates can help also. Many home owners have HELOCs or second mortgages on their homes. When the over all interest rates go down so does the interest rate on a home equity line of credit. As stated before this small decrease in interest rates can save hundreds of dollars each month from a mortgage payment.

Lets home the next administration tackles the foreclosure crisis head on so the housing prices stop going down. When housing prices stop decreasing and start to increase, the over all economy will start to come back to life. Home owners will not feel like they are wasting money each month, paying for a decreasing asset or liability.