Boston Real Estate Lawyer – Refinancing in the Current Economic Climate

The reversal of continued weakness in the U.S. housing market remains the critical challenge for federal lawmakers and financial institutions desperately seeking to jump start an economic recovery. In the opinion of most observers, irresponsible lending practices by the predatory lenders, coupled with loose regulatory oversight by the government, triggered the melt-down in home values beginning in 2007. The tsunami that ensued has impacted the global economy, most notably in the credit and equities markets. As home values fell, household budgets tightened, leading to massive job losses and the inability of many families to meet their monthly mortgage obligations. The result: increased foreclosures leading to even further erosion in home prices.

The broad strategy goes far beyond the “bailout” and “stimulus” packages that have been such hot topics of news coverage and debate recently. Even the hundreds of billions of dollars that the government has agreed to make available to shore up the lending institutions cannot solve the massive credit problem by itself. By all current indications, the lenders and the government seem to have concluded that the only feasible long-term strategy is to make all efforts to make low fixed rate mortgage loans available to a wide spectrum of borrowers. The federal government has all but ensured this for the foreseeable future by lowering the prime lending rate to historic lows, and taking a hard look at the lending regulations in place regarding the limits on federally insured mortgages and loan-to-value guidelines.

When the initial subprime mortgage crisis expanded to affect almost every sector of home mortgage loans, and the loan failures exploded, the initial reaction of the government and the lending institutions was to make home mortgage loans all but impossible. Panic set in, and underwriting guidelines for credit scores, loan-to-value allowances, total debt to income ratios were tightened so extremely that for a period of several months during 2008 mortgage lending ground to a halt. This had a further restrictive impact on the economy, as there was very little available capital for businesses and consumers to borrow, spend and invest. After some painful reflection, we have now entered the current climate where the availability of affordable credit is a central component of the recovery plan.

Taking advantage of a lower mortgage rate can greatly improve nearly every homeowner’s budget in the short- and long-term. For a mortgage loan amount of $417,000.00, the current limit of a “conforming” loan for which the best rates are typically available, a saving of each half percentage point of interest represents an annual savings of nearly $2,100.00. Whether saved, spent or invested, the benefit is tangible.

Some borrowers who are several years into a mortgage are hesitant to refinance because they don’t want to feel like they are “starting over” on their mortgage payments and buying into another full term until the loan is paid off. This is a valid consideration, but as a practical matter only applies to a homeowner who knows they will not be selling their property before their mortgage is paid off. Otherwise, since the mortgage must be paid off at the sale, not refinancing doesn’t make real economic sense. Another strategy is to make monthly payments that are slightly higher than the actual required payment to shorten the overall term of the loan and pay down the principal on an accelerated basis. A simple guideline is that a payment of one additional payment of principal and interest each year will reduce the term of a 30-year mortgage to just over 22 years.

Parker Scheer strongly encourages our clients to take advantage of the economic opportunity that the current mortgage lending market presents. We have developed strong relationships with local and national mortgage lenders, who offer a wide variety of products tailored to a borrower’s individual needs. Please contact one of the attorneys in the real estate department at Parker Scheer to answer any questions about the refinance process.

Contact a Massachusetts Real Estate Lawyer

To speak with an experienced Boston real estate lawyer about refinancing, phone Parker Scheer LLP seven days a week, toll free at 866-414-0400 or contact Rob D. Stewart. All information furnished will be kept strictly confidential.

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