Mortgage refinances have been surging due to the record low fixed-rate mortgage now available to burgeoning homeowners. lifetradingnews.com says, “Home loans were repaid in August at a pace that would erase 25% of the debt in a year, according to Lender Processing Services Inc. (LPS), a Jacksonville, Florida-based data provider that tracks 40-M mortgages.”
This is literally free money if you take into account that over the last 25 years that inflation has been on average just under three percent. So adjusted for inflation, a sub-three percent 15 year fixed-rate refinance could be considered free money. How crazy is that? Banks need to earn more than the three percent inflation rate to turn a profit. But here’s the catch: the banks are not keeping these loans!
Let me explain. The Federal Reserve and the government is attempting to stimulate the economy by manipulating the mortgage market in our favor via quantitative easing, called QE3. This program won’t last forever, although if Bernanke has his way it’ll probably last for years (assuming he’s not replaced after the coming elections). For the last few weeks, the government has spent $20 Billion per week buying up mortgages from banks. Rates could potentially continue to drop but it’s worth it to refinance now.
According to the latimes.com, Freddie Mac’s weekly survey claims the average rate for a 30-year fixed home loan is 3.4% percent. This is down from 3.49% the week before, 4.01% a year earlier, and 6% for most of 2008 (I received 6.5% when I purchased my home that summer). These very affordable sub-three percent rates aren’t reserved for people with perfect credit since the national average is for 15 year fixed rates is 2.69%.