When mortgage rates dropped to the lowest levels in almost a year, Warren Zeger seized the opportunity to slash $720 off his monthly mortgage payment by refinancing his home in Potomac, Md.

Just don’t expect him to spend the savings.

“I’d love to tell you I’m going to spend it to help prop up the economy, but we’ve tightened our belts,” said Zeger, 61, a retired attorney. “I plan on holding on to it.”

Zeger echoed homeowners The Associated Press interviewed nationwide who have taken advantage of lower rates since Nov. 25th. They planned to stuff the money they saved under the mattress or pay off bills. Refiinance activity has surged as interest rates tumbled about 1 percentage point to around 5.5 percent in response to the Federal Reserve’s plan to scoop up $600 billion of mortgage-related securities.

“We’ve had a lot homeowners waiting for some time” for this drop in rates, said Ritch Workman, co-owner of Workman Mortgage in Melbourne, Fla.

The Fed’s move was the latest in an unprecedented series of actions to help stabilize the housing and credit markets as well as the broader economy. However, pushing down mortgage rates may only have a muted effect on the economy. That’s because more than a quarter of homeowners with a mortgage can’t qualify for a new loan, and many who can are so financially stretched that little of the money they save will end up in store cash registers.

“If you’re worried about making it month to month and your mortgage is your biggest payment you’re not going out to buy a car and a lot of Christmas gifts,” said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication in Bethesda, Md.

Stuart Cassell in Sarasota, Fla., is putting his $80 monthly refinanse savings into his nest egg, while product development manager Subash Ramnani in Chicago is using the extra $300 a month from his refinancing to pay for graduate school. Jennifer Burke and her husband in Bel Air, Md., are saving the additional $240 a month as they wait out the recession and raise a one-year-old daughter.

Marcus Leef’s $150 monthly savings is going to daycare costs and personal savings. Leef, a consultant in Hartford County, Conn., has seen his stock portfolio plummet 40 percent, his retirement savings plunge by half and his corporate stock tumble by 60 percent this year. He’s not optimistic.

“My view is the economy is in the toilet. It’s going to get worse before it gets better,” he said. “If rates drop another point tomorrow, I’ll (refinance) again the day after.”

Those are the luckiest homeowners. Les Berman, a mortgage broker in Encino, Calif., said most borrowers contacting him have interest-only mortgages and they want to lock into a fixed-rate loan. They’re not saving any money each month if they do that; instead, they’re taking higher payments to get out of riskier loans.

“They want that security. They want to protect themselves against the future,” he said, even if it means shelling out more each month.

Other borrowers, like Eric Dudek in Grand Rapids, Mich., are waiting to see if rates drop further after hearing reports that the government is considering a proposal to lower the rate on 30-year home loans to 4.5 percent by buying more mortgage-backed securities.

“I’m thinking maybe I should hold off, you know?” said Dudek, who would use the savings from a refinancing to pay off student loans.

But he could be waiting in vain because the plan is only expected to apply to purchase loans, not refinance loans. Either way, most borrowers will need more than just lower interest rates to solve their problems.

Brokers are turning away thousands of borrowers because they just won’t qualify for a refinancing. Pava Leyrer, president of Heritage National Mortgage in Michigan, said about 40 percent of the homeowners calling her likely won’t get a refinance because of falling home values, credit issues and job loss.

Likewise, Brad Cohen, vice president of Mason Dixon Funding in Rockville, Md., said as many as two-thirds of borrowers he’s talked to don’t qualify because they owe more on their mortgage than their house is worth.

An estimated 12 million U.S. homeowners are in that situation and declining home prices only exacerbate their situations. Low interest rates won’t be enough and if they fall into default or foreclosure, that will only make the current financial crisis worse.

“There’s no plan in place to help them right now,” Cohen said.

AP Real Estate Writer Alan Zibel in Washington, D.C., contributed to this report.
Google news
Article source

1. Obama’s Homeowner Affordability and Stability Plan – Relief for Homeowners

   The value of houses has dropped considerably, and people are finding it difficult to refinance mortgage loans at lower rates. Many employees have lost their jobs, or have been...

2. Obama’s Loan Modification and Mortgage Refinance Programs, Guidelines

   Obamas Loan Modification Plan – The Advantages, Guidelines and DeadlinesStressed homeowners could get the assist they need to avoid foreclosure and obtain lower mortgage payments with Obamas loan modification...

3. Excellent Mortgage Refinance Rates You can Opt

   Subsequent to qualifying several lenders, empower only the companies that can snap you the greatest Mortgage Refinance Rates to withdraw your faith.At what time you refinance your mortgage, you...

4. Tips On New York Mortgage Refinance Loan

   *** Many homeowners want to know if it worth taking a New York mortgage refinance. How do you know if New York mortgage refinancing makes sense in your case?...

5. Fixed-Rate Savings Bonds – What Next?

   If you are one of the thousands of savers who piled into high-interest fixed-rate savings bonds a year ago, you may be in a quandary as to what to...

6. No Points No Fees Refinance – As Attractive As It Sounds

   To close a traditional refinance mortgage, you do need to pay for things for instance the title search, title insurance, attorney’s fees, flood certification fees, courier fees, recording fees,...

7. How to Cash Out Refinance

   A cash out refinance can be a great, low interest, way out of debt, but it’s not something that should be done lightly. Because of the risks involved you...

8. Scottish Homeowners ‘Spiralling Into Debt’

   Adults across the north of Scotland are developing debt difficulties as a result of owning their first home, it has emerged. According to Citizens Advice, a sharp increase has...

9. Welsh Homeowners ‘Could Be Tipped Over Financial Edge’

   More homeowners in Wales are on track to find themselves in an untenable position to manage their money, a new investigation has uncovered. According to a new report by...

10. No Need to get Negative About Negative Equity

    Getting into negative equity is a homeowners’ nightmare – one which, unfortunately, more and more people are now suffering. The January 2009 figures from the Halifax House Price Index...