The 30-year fixed-rate mortgage rate averaged 5.47 percent with an average 0.7 point for the week ending December 11, down from 5.53 percent last week and 6.11 percent a year ago. The rate hasn't been lower since March 25, 2004, when it averaged 5.4 percent. Great news, right?
It definitely is if you're a home buyer. But you may not be as pleasantly surprised if you're trying to refinance.
Why is that? Because rates on refi's are higher than those for home buyers, even if you have substantial equity in your home and great credit. That means that your new neighbor who just moved in got a 5.5 percent rate while you were offered between 5.75 and 6.0 percent for your refi.
"Absurd!" Perhaps. But it's the reality of the times. There's a good post over at Bloodhound Blog that touches upon some of the reasons, which include the fact that lenders hate refi's due to their "nebulous valuations".
And think about it…those who are able to refinance already have equity built into their homes (you have to in order to refi) and are probably in a better financial situation when it comes to their home than those who can't refinance due to being "upside down". The people in the better financial situation are not the ones that the lenders or the Feds are worried about.
Lenders and the Feds are worried about those who are in financial turmoil and can't refi nor sell their house for more than what they owe on it. And they care about getting "fresh" loans and money out to home buyers in order to lower the inventory, keep the lenders afloat and stimulate the housing market and overall economy.
In order to to do that, they're sweetening the deal to home buyers, not those who are financially stable and have equity in their homes.
Unfair? If you're someone who has great credit, equity in your home and just wants to save a few bucks every month to put into savings to spend on goods/services (all of which help you and the overall economy), you're probably saying,
"Yes! Why should I have to pay a higher rate than someone who can only put 3% down and has worse credit than me?!"
But, if you're someone who wasn't able to buy until recently due to "inflated" home prices or higher rates, you may be saying,
"No, it's not unfair! It's about time I'm able to buy something! I, too, will someday have equity in my home, savings in the bank and be in the same position as my well-off neighbor, which will help the overall economy down the road."
There's two sides to every argument and I'm not here to judge whether one is right or wrong. I'm here to pass on the information, offer some personal insight as to the reasons and let you come to your own conclusion. But, whatever your stance is, get used to seeing a difference between home buyer rates and refi rates because many are saying that this pattern will continue through 2009.