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Mortgage Refinance Quote Offers Flexibility to Homeowners
Over the past several years, the housing market in the U.S. has
boomed. Homeowners have watched their home equity balloon as
housing prices have soared. In many areas in the U.S., modest
homes purchased as recently as seven years ago have doubled or
tripled in value. During that same period, interest rates dipped
dramatically, allowing a homeowner to obtain a mortgage
refinance quote. In refinancing, homeowners lowered monthly
payments and often withdrew a portion of their home equity - via
home equity loans and home equity lines of credit - to make
purchases or pay down consumer debt with higher interest rates.
In a speech given in October 2004, Federal Reserve Chairman Alan
Greenspan said, "Despite average annual mortgage debt growth in
excess of 12 percent over the past two years, the financial
obligations of homeowners have exhibited little change as a
share of their income because mortgage rates have remained at
historically low levels. The enormous wave of mortgage
refinancing, which ended only in the fall of 2003, allowed
homeowners both to take advantage of lower rates to reduce their
monthly payments and, in many cases, to extract some of the
built-up equity in their homes. In the aggregate, the cash flows
associated with these two effects seem to have roughly offset
each other, leaving the financial obligations ratio little
changed."
Greenspan continued, saying, "Indeed, the surge in cash-out
mortgage refinancings likely improved rather than worsened the
financial condition of the average homeowner. Some of the equity
extracted through mortgage refinancing was used to pay down
more-expensive, non-tax-deductible consumer debt or to make
purchases that would otherwise have been financed by
more-expensive and less tax-favored credit."
According to the Federal Deposit Insurance Corporation (FDIC),
historically low mortgage rates caused record numbers of
homeowners to obtain a mortgage refinance quote and to sign on
the dotted line to refinance their mortgages at lower rates. In
a recent report, the FDIC said, "As mortgage rates bottomed out,
refinancing volumes peaked in June 2003, but they have fallen
sharply since then...Indeed, the Mortgage Bankers Association
recently forecast that the dollar volume of refinancings would
decline 57 percent in 2004 from a record $2.5 trillion in 2003."
More homeowners are seeking a mortgage refinance quote to
obtain a home equity line of credit (HELOC). According to the
FDIC, these lines of credit have grown about 30 percent
annually. The FDIC report states, "The rationale for homeowners'
greater use of HELOCs is straightforward. With consumer spending
outpacing income growth in the 2000s, homeowners have turned
increasingly to home equity lending as a substitute for consumer
credit to finance new consumption, reduce outstanding debt, or
purchase a home in a two-loan package deal. The appeal over
other more costly credit alternatives derives from the
significant advantages of comparatively low interest rates, tax
deductibility, and easy availability, since income and cash flow
tests matter less for determining credit lines than for credit
cards or auto loans. Furthermore, because HELOCs offer the
flexibility to draw money only as needed and the convenience of
a revolving credit line, borrowers favor HELOCs more and more
over closed-end home equity loans. For these reasons, many
homeowners are converting the equity in their home into cash
through home equity borrowing and making this kind of
transaction an increasingly important part of their household
finances. With the dramatic decline in mortgage refinancing
volumes since mid-2003, a homeowner would more likely choose to
tap home equity through a draw on a HELOC rather than extract
cash as part of a refinancing."
Obtaining a mortgage refinance quote is the first step in
obtaining a home equity line of credit that homeowners can use
for home improvement, debt consolidation, or consumer spending.
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