Unavoidable expenses burn through a larger portion of consumers' disposable income than ever before, according to Fidelity Investor's Weekly. Starvation is not an option, and few live within walking distance of their jobs. When cutting out lattes isn't enough, homeowners look for ways to lower their interest rates and payments and get a little breathing room.

Reasons for Refinancing Are Changing

Mortgage interest rates were higher twelve months ago so there was less opportunity to save money by refinancing to a lower rate. Last year, homeowners surveyed by GuideToLenders.com cited "lowering payments" most often as their chief motivation for refinancing, followed by "getting a fixed rate." Lowering the interest rate, cashing in equity, and other reasons were less popular.

Today, it appears that short-term concerns like higher prices and uncertain income are outstripping the desire for a stable fixed rate loan. GuideTolenders.com mortgage applicants choose "lower interest rate" and "lower payments" more often than "fixing the interest rate" as their reason for refinancing now. With fixed costs at 41 percent of disposable income, up from only 33 percent in 1980, families are strangling on their debt. High food and energy costs and plunging consumer confidence are also contributing factors.

Fixed Rates Not Affordable for Everyone

Many who could most benefit from getting a fixed rate (like those in option ARM programs) have been unable to refinance because they lack the equity to do so.

Another obstacle to refinancing to a fixed rate is the premium demanded by investors for fixed rate jumbo mortgages. Investors perceive these loans as riskier and are demanding that they be priced accordingly. Borrowers with jumbo mortgages may find it easier to get a hybrid ARM and lower the rate and payment than to get a fixed mortgage.

Recently, FNMA (Fannie Mae) stopped trying to sell jumbo mortgages as investments and began holding them itself. This move has brought the pricing down somewhat for "jumbo-conforming" mortgages. Homeowners interested in getting a fixed-rate jumbo mortgage should check with several lenders; things have been changing and a new loan at a decent rate may be doable now.

The Future of Mortgage Refinancing

With the twin threats of a slowing economy and rising prices looming, one of the few silver linings available is relatively cheap mortgage financing. Borrowers who can afford to buy stability by paying a little more now may find themselves benefitting a great deal in the future should interest rates jump. The current difference between the rate on a 30-year-fixed-rate mortgage and an adjustable rate loan is small, less than a half percent as of this writing.

Pulling the Trigger

While mortgage rates have trended lower overall, there have been up and down spikes of limited duration during this time. Refinancing does take time; homeowners can position themselves to take advantage of sudden moves in the market by shopping, selecting a lender, and getting preapproved for their loans. That way when rates drop into their target zone, consumers can complete the transaction immediately.

Sources

CNNMoney

Fidelity Investor's Weekly

Lansing State Journal

GuideToLenders.com

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