Outlook Is Hopeful For Home Buyers

There is a plan in the works to lower the rate on 30-year home mortgages to 4.5 percent, a number not seen in decades for home loans. The plan by the Treasury Department to help the hurting housing industry would be accomplished through purchasing mortgage-backed securities from Fannie Mae and Freddie Mac. For those with good credit and some money for a down payment, it is a great time to buy a house.

The downside to this plan is that it does little to help those who are struggling to pay their existing mortgage. While Federal Reserve chairman Ben Bernanke gave new warnings last week about how the growing number of foreclosures is adversely affecting the economy, there seems to be little agreement on how to help.


The Treasury Department plan could only be available to people buying houses, not to those who want to refinance. Thus someone moving in next door could pay considerably less in mortgage payments each month than the person who has owned his house and struggled to keep up the payments at a higher interest rate. It doesn't seem fair and it only addresses half of the housing market problems.

According to the Associated Press, the man in charge of the $700 billion bailout, Neel Kashkari, told a congressional panel last Thursday that the user was reviewing the 4.5 percent mortgage plan. What remains unclear at this point is if the Treasury Department's proposal would end up applying only to new mortgages or to refinanced loans, as well.

Some economist seemed to believe that a government lending plan that applies only to new loans would not do enough to help the overall economy. But those in the home building, real estate and other related home industries seemed to welcome the proposal. Lawrence Yun, chief economist at the National Association of Realtors, said by spurring new buyers the housing market and the economy would be stabilized.

If the Treasury Department does end up using some of the bailout funds to offer help to current mortgage owners, it may or may not be a good idea to refinance. According to Bankrate.com, good reasons to refinance include getting a lower interest rate, shortening the term of the mortgage to build equity faster, lowering monthly payments or switching from an adjustable rate to a fixed-rate mortgage.

However, homeowners need to consider the cost of refinancing before rushing to the bank. Since getting a new loan can cost around 2-3 percent of the total loan amount, it is important to weigh the cost against the benefits. For instance, if a homeowner plans to be in the house for years to come, refinancing is probably a good idea. But if the outlook for owning a home is less than 3 years, refinancing may not be worth it.

And then of course, there are those really hurting who owe more than their house is worth. This is where the bailout gets very tricky. It seems the logistics of helping those truly facing foreclosure is difficult at best and a losing proposition for lenders at worst. While there are no easy solutions to the current financial crises, at least there are some silver linings. The hope is that a spree of new home buying could help the housing market and eventually stabilize home prices.

By: Dane Smith

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Ki lives in Austin Texas. He consults with buyers looking for Austin Texas real estate. His site provides a graphical search of the Austin MLS along with a mortgage rate widget.