Home mortgage: New mortgage rates and economy

The changes brought about by the new government have provided a stimulus to the slow economy. Low mortgage rates have been adopted as trouble shooting measures and as expected there is an increase in refinancings which increases liquidity. People are finding that they have free cash to spend on other needs. The government’s move to lower rates has been a positive action for the economy of the country and the entire world.

The questions have started coming through. Is lowering of rates enough to speed up the economy?  The situation is such that borrowers have not so good credit scores and this affects their eligibility to go for refinancing even when the rates are low. The low rates have not brought back many home buyers into the market in spite of rates being less than fiver percent. The buyers are exercising caution and are opting to wait and watch before plunging. Of course, the government is new and policies are new hence it is too early to make predictions about the result of the low rate plan. Reports from many parts do claim that it was a stimulus to the economy.

During the boom days refinancing was on the rise with people trying to modify loans so as to meet the requirements of a market where there was steady increase in home prices. Trying to cut debts and still own homes was the prerogative. Refinancing was a boost to the economy. There was lowering of rates , sometimes even below six percent for a thirty year loan as compared to the seven to eight percent in the 90s. Thus cash out refinancing was on the rise just like the economy. Things have changed and conditions are different now.

Credit standards have been tightened and people are finding it difficult to qualify for getting loans. If lowering of rates is accompanied with programs that would change qualification conditions things might definitely take a turn for the positive. Home prices in US have declined and have pushed mortgages under water. Home buyers have either negative equity or their loans have become bigger than the value of their homes, still others are on their way to reaching there.

Refinances would occur only when lenders would agree to write down principle and hope that payments towards the new loan would be made regularly. The government is trying their level best to avoid new foreclosures too.

With the mortgage number reaching a highest in six years, economy sure seems to be looking up. Refinancing with low rates would solve the problem partially. Policy makers hope for an increase in purchase of homes for boosting the economy. The Treasury has been assigned the job of buying mortgage related debts. The interest rate has been cut by the Fed.

Basic psychology about the housing market has to undergo a change for people to take to it in large numbers like during the boom days. A fall in rates has not completely solved the problem but it certainly is a beginning. As for now, refinancing is for people with equity or good credit scores.