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Mortgage Rates Down, Payments Up

Posted In:  mortgage

Mortgage rates have dropped to an almost all-time low, which is a major relief for current homeowners looking to refinance, as well as those who are shopping for a new home. The new low mortgage rates are mostly benefiting those who already own their homes, since almost two thirds of applications came from people hoping to refinance on their mortgage.

Saving Money

Refinancing a home and receiving lower mortgage rates, one of the great side effects of an unstable economy, can save families hundreds of dollars every month. In order to get this loan, however, lenders want owners to have at least 20% equity in the homes, not an easy feat when prices of homes are subsequently dropping. If they cannot make this mark, owners can also put a larger down payment on a home in order to hit 20%. While this was not a common practice in the past, more people are taking advantage of it simply because they cannot pass up the great interest rates.

Even a savings of a couple hundred dollars every month can add up, making the refinancing process worth it. For example, somebody who has taken out a loan over 30 years for $150,000 with 5% interest will pay $805.27 every month. If the interest rate is lowered to 4.25 percent, the owner will actually save $808 every year. That’s $24,240 for the entire loan.

Is it Difficult to Get a Good Rate?

While the new financing rates are sure to have homeowners jumping to lower their mortgages, it may not be so easy. Applications can be denied depending on the lender and their standards and also because the values of homes are dropping. When the market was booming, homeowners could get loans approved in a matter of hours. Now, however, it could take several weeks before loans are approved.

The falling housing market, including short sales and foreclosures, has pushed home values way down. If the homeowner still owes more money on the home than it’s actually worth, it is probably impossible to get approved for a loan. Moreover, those with lower credit scores, typically anything below 720, can still receive loans, but they will have to pay a higher interest rate. To them, the higher rate may not be worth the hassle of refinancing.

Payments Improving

Since the first quarter of this year, the rate of people who were late on payments fell in 49 states, with the exception of Vermont. However, the rate of late payments in this state was still 2.98 percent, way below the average across the country. Alaska’s delinquency rate was only 2.64%, making it the state least likely to have its occupants make late payments. The other two states least likely to have late payments, South Dakota and Nebraska, had delinquency rates of 2.31% and 2.43%, respectively.

TransUnion, a credit reporting agency, also stated that the overall percentage of people who held mortgages and were at least two months late on payments earlier this year fell for the sixth straight quarter. Currently, 5.82 percent of homeowners were late after 60 days, down from 6.67% in 2010.

Older mortgages that required owners to refinance due to job loss or payments beyond their financial were also considered. Many homeowners were actually ignoring their mortgages so that they could pay their other bills on time, bills that they deemed more important than a mortgage payment. However, the continuing decrease in late payments is likely to continue throughout this year as the economy improves and lenders reinforce tighter standards to offset the decreasing prices of homes.

Benefits of Refinancing


If owners successfully refinance their mortgages and pay lower rates, the process can actually benefit the economy by freeing up money that owners can put back into the market elsewhere. However, it would be best if loans were going to new houses, not refinancing because that would give more people jobs such as construction workers, carpenters and even people who sell appliances for the home.



Mallory Hall is a married mother of two blogging on family, financial and health topics. Visit her at Guru to if you'd like her to write for you.






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