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Three Reasons Why Waiting to Refinance May Not Be Such a Good Idea

[Dec 15, 2009.]


Anyone who has ever refinanced a mortgage before knows how important the element of timing can be. One week too early or too late, you may miss a lower mortgage rate that could have reduced your monthly payment by $50 per month, which would in turn have reduced your mortgage costs over the life of your new mortgage by $18,000.

Yes, refinance timing mishaps like that can hurt.

However, homeowners who are waiting to refinance right now need to ask themselves if they are waiting for something that is not going to come. At the very least, homeowners should consider the factors that are making right now a potential "now or never" moment in the refinancing marketplace:

1. Government Assistance Propping Up the Whole Edifice

The first thing that must be realized, as to the now or never aspect of refinancing, is that the U.S. government is pretty much singlehandledly propping up the entire edifice of mortgage lending in the United States at this point. Important programs that may not last forever include:

-- Freddie Mac, Fannie Mae, and the FHA continuing to buy and insure mortgages without excessive questioning of whether or not those mortgages will default in the near future.

-- U.S. government, through the Federal Reserve, continues to be the primary purchaser of mortgage-backed securities. What happens when that stops?

-- First time homebuyer credit spurring increased home sales, stabilizing prices for your refi.

-- Home Affordable Refinance Program puts troubled homeowners into 2 percent mortgages.

What happens when all those programs start to end? Do you really want to wait to find out?

2. Can Mortgage Rates Be Any Lower?

Maybe they could be, but it would definitely be tough to see how. As the economy grows, inflation will become a worry--and the Federal Reserve will have to act, at some point, to raise interest rates.

Depending on how the economic data plays out, especially those Consumer Price Index (CPI) numbers which measure inflation, the rate raising could begin sooner rather than later.

3. Banks Under Political Pressure to Lend

Sure, bankers would love to be able to evaluate mortgage applications based upon purely numbers, but the reality is that banks are under tremendous political pressure to stem the foreclosure crisis at least somewhat. And that means refinancing borrowers who can qualify.

As banks start to worry less about their own survival--and judging by 2009 bank earnings that worrying less process is in motion--the motivation to loosen refinance underwriting standards to some degree may act as a powerful motivation.

The combination of these three factors would seem to indicate, as noted, that the time to refinance if at all possible is now.


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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