August 11th, 2011 1:58 AM

I found this article in thhe Chicago Journal 8/10/11 and I thought it would be of interest to you.  Feel free to share with friends, family and co-workers.  As always, I'm here to help, so feel free to contact me to see how a refinance may be beneficial: 719-499-8061

Refinance before rate rise

The Home Front

08/10/2011

DON DeBAT

What should America’s 70 million homeowners do while the United States and much of the world are in financial turmoil?

If you own a home, have a good job and can qualify for a mortgage, now may be the perfect time to refinance into an affordable 30-year fixed-rate home loan at less than 4.5 percent interest, a near rock-bottom low.

Seventy-seven percent of homeowners who refinanced their first-lien home mortgage in the first quarter of 2011 either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table, reported Freddie Mac. Of these borrowers, 51 percent maintained about the same loan amount, and 26 percent of refinancing homeowners reduced their principal balance.

The median interest-rate reduction on a benchmark 30-year fixed-rate mortgage was about 1 percentage point, or a savings of about 18 percent in interest rate, Freddie Mac said. Over the first year of the refinance loan life, these borrowers will save more than $1,550 in interest payments on a $200,000 loan.

Economic experts say mortgage rates likely will not be immediately affected by the lowering of Uncle Sam’s credit rating, but over the long term there is risk that interest rates will rise.

A downgrade in the nation’s credit rating likely will lead to higher borrowing costs for the government because investors will demand a higher interest rate to absorb the risk, economists say.

Higher rates down the road on 10-year U.S. Treasury notes and other long-term government debt could lead to higher borrowing costs on everything from home mortgages to auto loans. So, if you currently have an adjustable-rate home loan it is virtually certain that the interest charges will rise in the future, experts say.

In early August, before the downgrading of U.S. credit, Freddie Mac’s Primary Mortgage Market Survey reported that mortgage rates dropped sharply amid falling bond yields and signs of a weaker than expected economy.

As a result, benchmark 30-year fixed mortgages averaged 4.39 percent, the lowest level for 2011. A week earlier, the rate was 4.55 percent. Last year at this time, the 30-year fixed home loans averaged 4.49 percent.

The average 15-year fixed mortgage set a new historical record low at 3.54 percent, down from 3.66 percent a week earlier. A year ago at this time, the 15-year fixed home loans averaged 3.95 percent.

“Treasury bond yields fell markedly after signs the economy was weaker than what markets had previously thought allowing fixed mortgage rates to follow with the 15-year fixed setting a historical low,” said Frank Nothaft, vice president and chief economist, Freddie Mac.

The U.S. government has carried an AAA credit rating since 1917. On Aug. 5, when Standard & Poor’s downgraded the nation’s credit rating to AA+, it was the first time Uncle Sam had been put on review by a credit agency for a possible downgrade since 1996. The credit-rating agency is concerned that the U.S. debt threshold won’t be raised in time to prevent a missed interest or principal payment on outstanding bonds and notes.

Meanwhile, the bond market and Wall Street are in disarray because of the U.S. credit downgrade.

The sector of the bond market most immediately affected would be pre-refunded bonds backed by escrows of U.S. Treasury or Government-sponsored Enterprise (GSE)-backed debt, including housing bonds with Federal Housing Administration or Veterans Administration mortgage insurance, according to analysts with Wells Fargo Bank N.A. These bonds would also be under review for a possible downgrade, experts say.

GSEs such as Fannie Mae or Freddie Mac do not rely directly on the Treasury for their debt payments. Therefore, they should be able to continue to roll over their short-term borrowings without substantial effects after the U.S. downgrade.

Also, banks and insurance companies, which are major holders of mortgage-backed securities, are unlikely to be pressured because risk-weights do not change unless the overall rating is below a AA rating, experts say.

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