Refinance-Unwind the Trapped Equity

The reigning credit crunch has disturbed the financial equilibrium of many people around the globe. Aftermath of subprime mortgage crisis was felt the world over and the housing market is yet to recuperate fully. With such a situation prevailing, there are many who successfully manage to tap the equity in their homes. It has been made possible due to reduction in the mortgage rates.

Refinancing activities increased
Statistical data indicates that the fixed rate mortgage for a 30 year loan term dropped by 1.3 points from 6.46% to 5.14% during the period October 2008. The fixed rate mortgage rates for a 15 years loan term has also registered a sharp decline from 6.19% to 4.91%.

Reports also suggest that mortgage refinance escalated by 60% during the 2nd week of December 2008 (according to Mortgage Bankers Association). The increase in mortgage refinance activity could be traced as there were marked changes in the refinance index of Mortgage Bankers Association which keeps a track of all the refinance loan applications.

Mortgage refinance has gone down well with consumers who think they are being able to save a good deal by making lower mortgage payments. The amount that the consumers are saving is being spent mostly for building up an emergency fund or to save it for the rainy day.

Eligibility criteria for mortgage refinance are still stringent
Even though consumers are trying hard to utilize their property by opting for refinancing, not all are qualifying for the same. There are 2 reasons for this. The first reason is that the norms and requirements for qualifying for refinance have been made more stringent. The second reason is that the housing values have declined drastically.

Creditors are usually giving preference to borrowers having 20% equity in their property. However, a borrower can opt for private mortgage insurance in the event he has less than 20% equity in the property.

Refinance is a good option when there are several debts that need to be settled. It is better to opt for refinancing even if the rate available is 1% less than interest rate, the homeowner is currently paying. With the bursting of the housing bubble, lenders have become very cautious and tend to disqualify any loan application that appears to be a risky deal for them.