Refinancing at an Eight Month High

This caught my eye today, as I was looking at real estate news stories: according to the Mortgage Bankers Association, refinancing is at an 8 month high. That's not necessarily good news.

Refinancing typically happens for a few key reasons: 1. The interest rates have dropped significantly, and the borrower can save a lot of money on their monthly payments by refinancing; or 2. the borrower wants to get access to some equity for another purchase -- very often, renovation costs for the home are covered by the home's existing equity; or, 3. the borrower is in trouble and needs to take equity out of their home in order to clear off debt; or 4. the borrower is in trouble with their mortgage payments, and needs to get those payments down.

Given the current market, and the fact that housing prices are either stable or dropping in most markets, it would seem that the most likely problem is that borrowers are in some degree of trouble, and are refinancing to get the cost of their monthly mortgage payments down.

Unfortunately, this trend will be walking hand-in-hand with the higher levels of foreclosure. Consumers have been lulled into buying homes which may be just a bit too big for their real way of life.

For instance, my wife and I have discovered that we could handily qualify for over a $300,000 mortgage. However, from our point of view, this is insane. Where would our weekly Japanese dinner go? Could we still afford to buy the higher quality food we enjoy, or would we be living on pasta every night? What about the fact that we can go out and buy ourselves a piece of new clothing whenever we need it, without concern? (With growing kids who always seem to need new clothes, this is a significant plus.) Where would we get the money to replace a car if something happened (as we experienced just this past summer)? How the heck could we afford our son's private school? It just doesn't make sense for us or our lifestyle to have a big mortgage; we'd be the proverbial "house poor" and would likely find ourselves in some kind of trouble pretty quickly.

We need to rediscover the value of buying a bit smaller than we might like and having a bit more money in our pocket for those little luxuries that we all like. After all, it's nice to have a perfect house, but it's also nice to be able to eat out when no one feels like cooking -- without breaking the bank.

Michael

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