September 29th, 2011
Mickey Kaus objects (sort of) to Daniel Indiviglio’s piece on the looming dip in mortgage rates. Indiviglio says the new lower rates will spur re-financing by moderately affluent types, increasing income inequality. My dumb question: Who’s left to re-fi?
The problem with re-financing these days is that your property has to appraise so that the new mortgage is now more than 80 percent of its value. That means that most houses bought in the last ten years are basically ineligible, since if you bought with 20 percent down in, say, 2006, your equity has probably shrunk quite a bit, even if you’ve been diligent in paying the mortgage every month. So if you want to re-finance, you have to be prepared to write the bank a fat check to get yourself back up to the 20 percent mark. Maybe that makes sense for certain people; but I suspect that for a lot of others it may not.
But the larger question is, who’s left to re-fi? Mortgage rates have been so low, for so long, that I suspect most of the people who have real, post-bubble equity in properties they bought long ago have already re-financed. How many of these folks are still sitting on loans with 9.5 percent juice and didn’t bother re-doing them 3 years ago?
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Great point. My wife and I were lucky enough (and maybe a little smart) to cash out on a condo near the Loop when the Chicago condo market was hot, so we have a lot of equity in our single-family home. We did this in 2003. Then, through the aughts, we refinanced a couple of times, taking advantage of the sinking like a stone mortgage rates. We currently have a roughly 4.6% 30-year fixed rate on about a $220,000 note, which makes our monthly mortgage payment with taxes and insurance around $1,500. This on a house that is worth close to $500K even in this depressed market (we live in one of the best neighborhoods in Chicago).
So it doesn’t really make sense for us to re-fi, unless maybe we want to build equity faster and switch to a 15-year note. The rate will be so low that we might come out with a monthly payment comparable to what we pay now.
Bill F September 29, 2011 at 4:11 pm
I’m going to refi from a 5.25% 30-year loan to around 3.5% on a 15-year loan. There’s plenty of room to refi.