Low Mortgage Rates Afford Unique Housing Opportunities

There was an informative article over the weekend in the Wall Street Journal that discusses some of the unique opportunities that are available in the housing market right now due to mortgage rates that are historically low.

According to the most recent Freddie Mac survey, the average mortgage rate on a 30 year fixed rate mortgage fell to 4.56 percent last week, the lowest rates since Freddie Mac started keeping track, and likely the lowest rates since the 1950s, which is really pretty extraordinary when you think about it.

As much as the housing market is in the toilet, many people are currently taking short-term losses in order to make long term gains.  Some people are bucking conventional wisdom and selling their houses at a loss, paying off the remainder of their mortgage in cash, and taking advantage of declining home values to purchase a nicer or larger home for close to the same amount of money their old home was worth.

Refinancing activity has exploded over the last few months as a result of low interest rates.  Cash-in refinancing in particular is becoming increasingly popular.  As we reported back in March, cash-in refinancing is when borrowers bring cash to a refinancing in order to pay down their loan-to-value ratios down in order to qualify for a more favorable rate or avoid paying for private mortgage insurance.  In the fourth quarter of 2009, about 34 percent of all mortgage refinances required the borrower to bring cash to closing.  This stands in stark contrast to 2006, when less than 5 percent of refinancing was cash-in.

Other borrowers are refinancing from 30-year fixed mortgages into shorter-term mortgages (15 or 20 year fixed) in order to save thousands of dollars over the life of their loan, and are still paying less money in monthly payments than they were before.

Finally, some people are just opting to pay down their mortgage early.  Interest saved is equivalent to interest earned, so paying down a mortgage early is essentially equal to putting that money into an investment vehicle that yields an equivalent return to the borrower’s mortgage rate.

I guess the takeaway is that despite the poor housing market, there are opportunities available that may pay off in a big way in the long term.  Have you used any of the above strategies to take advantage of low rates?  Let us know in the comments section below.