Should You Wait to Refinance?

What happened to the Treasury Department's plan to cut mortgage rates to four and a half percent to stimulate home buying?




Under the plan, Fannie Mae and Freddie Mac would buy loans at four and a half percent and the Treasury would subsidize the difference between that and market rates.


But last Tuesday, in an interview on the CNBC cable network, Treasury Secretary Henry Paulson basically said no such plan was ever announced. It got leaked prematurely.


Paulson also hinted that he would be reluctant to launch such an ambitious and potentially costly program without having the full support of the incoming Obama administration's Treasury team.

The National Association of Realtors, which had proposed the rate buydown concept to Treasury weeks ago, again called for the federal government to find a way to lower rates to four and half percent.


Meanwhile, new reports surfaced that a second plan was being considered: Under this alternative, the 12 Federal Home Loan Banks around the country would offer cut-rate mortgages using money raised by bond issuance’s at 3 percent by the Treasury. This concept is being pushed aggressively by the president of one of the banks and is under active consideration by the bank system's top regulator, James Lockhart, director of the Federal Housing Finance Agency.


The net effect of either plan would be the same to consumers: Sharply lower monthly mortgage costs. For example, here's what a four and a half percent rate does to principal and interest payments compared with a note rate of five and half percent: On a $200,000 mortgage, the one point difference would reduce payments by $122 a month.


On a $300,000 loan, the savings would go to $183 a month. And on a $400,000 mortgage, costs would be lowered by $244 a month.


Meanwhile, with market rates tumbling to five percent and below, a half point rate buydown could cost the government much less than originally estimated.
Then again -- there's always the possibility that to stimulate a really big round of home buying, rates could be cut to 4 percent.


With all these possibilities floating out there one may want to wait to refinance to see how the rest of this story unfolds.




Would you like more information about the Omaha housing market? Contact Bill.Swanson@cbshome.com or visit http://www.billswanson.com/.