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March Could Close Many Refinancing Windows

[Jan 29, 2010.]


This coming March, it appears, may prove a pivotal time in the refinancing market. The U.S. Treasury is slated to discontinue the mass purchasing of mortgage-backed securities. Essentially, the government has been feverishly buying mortgages for the last two years in hopes of keeping mortgage rates low.

The strategy has worked. Mortgage rates remain low.

But what happens when the U.S. government stops buying mortgage-backed securities, in March as scheduled? That is unknown. Mortgage rates could rise at that point.

This could affect three contingents of homeowners particularly strongly:

1. The Adjustable Rate Crowd

A little while back, we blogged about the fact that 1.3 million homeowners took out adjustable rate mortgages (ARMs) in 2004 and 2005. ARMs feature a mortgage rate that resets after a set amount of time. Five years is a common term for an ARM, which renders 2010 a key year in the story of ARMs.

Many homeowners in this crowd would love to refinance, but have had trouble meeting the loan-to-value ratios of bank lenders. If mortgage rates rise in and after March, this crowd will have an even tougher time finding refinancing opportunities.

Locating a good mortgage broker is a must for people in this group.

2. First Time Home Buyers

Over the past year, first time homebuyers have propped up the housing market pretty nicely, showing that the the American dream of owning a home is far from deceased. However, it is very unclear whether or not the first time home buyer crowd would still be clamoring to buy with mortgage rates higher than now.

In addition, the FHA has tightened lending standards.

Plus the first time home buyers credit of $8,000 will disappear on April 30. Buyers must enter into a binding contract (escrow) by that day to get the credit.

3. People Who Never Got Around to Refinancing

The last group of homeowners who may not enjoy the altered mortgage finance circumstances after March are people who want to and should refinance, but never quite get around to it. Too much paperwork, not enough time, and the necessary refinance just never happens. It's not a high priority.

Today's low mortgage rates are not a given, and will not last forever.

Getting that refinance application in the hopper with a locked mortgage rate before March seems like a good idea for anyone who is in a position to make that move and can benefit from it.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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