Refinancing Declines

No surprise here: as mortgage rates go up, it's less and less attractive to refinance. As a result, the most recent Freddie Mac survey says that refinancing has dropped to its lowest levels in two years.

It does make me wonder about those who have already refinanced recently. If the housing bubble is slowly bursting (the tide of analysts are turning in this direction now) and the prices are stabilizing or falling, what will happen to folks who refinanced in order to take "equity" out of their homes? Trouble can occur later, if the price of the home doesn't rebound in a reasonable time period, and these same folks find themselves having to negotiate a new mortgage when their current term expires. If they don't have enough equity left in their homes, they may find that they are charged higher interest rates, or even have their lenders refusing to re-mortgage them!

Now, that might seem extreme, but it could happen if your lender doesn't trust your ability to pay the mortgage off. It's a combination of factors that could work against you; for instance, if you find you don't have enough equity and your credit score has fallen due to any late payments, you could find your lender is treating you as a higher risk. Unfortunately, at exactly the point where higher interest rates will hurt the most, that is when they come into play.

While this might seem a bit excessively gloomy, and I do have a reputation for being conservative, but hear me out: if you've refinanced recently and taken equity out of your home, I'd suggest you put a plan in place to pay down your mortgage faster than usual. That plan could include higher monthly payments (if your mortgage allows) or saving up to make a lump sum payment as frequently as possible. Even if you can only make one lump sum payment per year on the anniversary of your mortgage, do it! It shows that you can handle your mortgage, and it also gets equity back into your home as quickly as possible.

It could help you ride out any cooling of the housing market, with the least possible problems.


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