Franklin Financial Group Blog

Recently I have had many inquiries about the Government imposing mortgage rates of 4.5%. Various media outlets have reported on the discussions and/or possibility of this happening. So far to my knowledge it has not happened yet. Furthermore, initial discussions seem to be mentioning this possibility for purchase-money mortgages only, not for Refinance loans. I believe the thought behind this is that if such low rates are offered to purchase homes, that more borrowers will be enticed to "pull the trigger" and start to purchase more home which will reduce the amount of inventory of homes listed for sale by both present owners and banks (foreclosures.) The theory is that as the inventory of homes listed for sale decreases, demand for homes (and all services related to the housing industry) should increase which should help to stabilize property values.

While I agree with this theory in part, I also feel that if this rate discussion becomes a reality that offering it to borrowers to refinance their property as well should be considered. Many people are still in jeopardy of losing their homes due to increased and unmanageable payments, which if they are able to obtain a lower interest rate to refinance, might enable them to afford the home after all and thus keep the inventory of foreclosures from increasing. For those not in jeopardy of foreclosing, if they are able to obtain a lower interest rate on their home mortgage, they should free up some cash-flow on a monthly basis that they could possibly use to spend on other things such as home improvements, paying down their debt or possibly begin using to rebuild investment and/or retirement accounts.

Regardless of the outcome of the discussions, one thing is for sure and that is it will possibly take some time for any action to take place. The Government Bailouts were agreed upon, but it took some time for the processes to take place and the positive effects were not immediate. The same will certainly be true should this rate imposition be agreed upon.