To Refinance, or not to Refinance?

Mortgage rates have dropped, but many homeowners are saying, "So, what".

December 22, 2008 -- BLOOMFIELD, MI - the Federal Reserve dropped the overnight rate to a record low of 0.25% on Tuesday, December 16^th.  More importantly, they announced a plan to buy mortgage-backed securities in quantity.  This sent mortgage rates to their lowest levels in 50 years.

Mortgage lenders around the country rejoiced, expecting another refinance boom just in time for Christmas.  Stories spread about the millions of dollars of loans locked and there was even talk of lenders hiring again.

Homeowners though, don't seem to care. 

In addition to blast emailing everyone in my database with what I thought was great news, I personally called over 70 clients that had a rate and loan amount where it could make sense for them to refinance.   Surprisingly, I seemed to be the only one excited about this opportunity.  Most clients didn't seem to be interested for various reasons - too busy getting ready for Christmas, savings not enough, too much paperwork to deal with, and the best one, "I think rates will go lower".  Several of my associates in the industry I talked to got the same feedback.

I've been thinking about these responses for a couple days, wondering why there hasn't been more interest in refinancing.  In years past, a drop in rates like this would've had my phone ringing nonstop.  With the large number of lenders out of business and the corresponding dramatic drop in loan originators, one would think the "survivors" would be swamped.

Me thinks homeowners are a lot more cautious these days, which is a good thing.  They're not willing to just refinance for the sake of refinancing or to convert home equity into dollars to spend.  Too many have been burned by mortgage crooks or overspent and are worried about losing their homes. 

There's also the fact that a significant percentage of homeowners with mortgages are upside in their homes. 

As I've written about in the past, it's estimated almost 25% of homeowners nationwide are upside down in their homes.   Nevada leads the nation at almost 53%.  Here in Michigan, the number is almost 47%.  FHA & VA loans already offer the option of refinancing without needing an appraisal.  On December 10^th, word leaked out that the government was considering making the same option available for conforming mortgages.

If that comes to pass, I wonder if it would make a difference with homeowners and increase their interest in refinancing?

Then there's also the issue of interest rates.  There are an abundance of news stories from Wall Street & Washington D.C. about how low interest rates may go.  One homeowner referred to me stated he wanted to wait to refinance and time the market so he could get the lowest rate.  I wonder how that strategy has worked for him in the stock market? 

Don't be greedy.  Besides the odds being against you in trying to time the market, there are several other possibilities that could work against you:  your home value could fall below that needed to refinance or enough to require PMI, mortgage rules could change again for the negative, you could lose your job, your credit could get damaged or your neighbor's foreclosure could drop your home's value.

Contact me to discuss refinancing.  If you've dealt with me in the past, you know I take pride in only refinancing when it makes financial sense.  Also, please refer your family and friends to me that have financing questions or are looking to buy.

Have a great & safe Holiday Season.

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Drew Sygit is President of The Lending Edge and holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor.  He's spoken for HUD, has written numerous articles and is a mortgage industry advocate for loan originator licensing and consumer education.  He can be reached at 248-356-3739, dsygit@TheLendingEdge.com  or read his blog:  http://drewsmortgagenews.blogspot.com.