Homeowners refinance their loans when interest rates go down. Businesses refinance their loans.
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Homeowners who refinanced their mortgages took out cash and reduced their monthly payments at the same time. Much of the cash obtained by refinancing was spent on consumer durables, home improvements and the like.
Right now we think that rates will stay low, that you'll be able to get a mortgage below seven percent and that's kicked off a refinance boom that's going to put more money in the pockets of consumers.
Companies typically borrow money at less than their return on equity and therefore compound their return at the expense of lenders.
Trailer home borrowers, mostly near the bottom of the economic ladder, often default on their loans.
The crisis and recession have led to very low interest rates, it is true, but these events have also destroyed jobs, hamstrung economic growth and led to sharp declines in the values of many homes and businesses.
It's sort of like a teeter-totter; when interest rates go down, prices go up.
Well, we're just now seeing the reductions in mortgage rates. The mortgage rates are based on the ten-year rate and the Fed controls the overnight or the shorter rates.
The decline in home equity makes it more difficult for struggling homeowners to refinance and reduces the financial incentive of stressed borrowers to remain in their homes.
As the United States has become an older nation, reverse mortgages have grown into a $20-billion-a-year industry, with elderly homeowners taking out more than 132,000 such loans in 2007, an increase of more than 270 percent from two years earlier.
Because the fees associated with a reverse mortgage are high, such loans make sense only for borrowers who expect to live in their home for a number of years.