What If Everyone Refinanced?

Think about it. What if everyone who were decent credit risks were suddenly able to refinance from higher rates to the current 3.75 to 4 % rate? What would this mean for our economy? For the real estate market as a whole?

Let’s say each person saved 2 % on their mortgage interest rate and this translated into a savings of about $2,000 a year. And this is a very conservative estimate as some homeowners currently have mortgage interest rates in the 8 to 12 % range (or higher).

Now, if all these consumers spent even half that savings on products and services, it would result in a multi-billion dollar economic boost. Lack of consumer spending in 2009 was one of several major issues with the economy being so sluggish. Consumer spending has slightly improved in 2010, but is still not at normal levels.

In addition, for the millions of homeowners who write off their mortgage interest when doing their annual income taxes, the wide-scale refinances would increase tax revenues (because they would have less interest to deduct). More revenues there would ease the astronomic federal deficit and perhaps allow for the implementation of worthy programs to help seniors, the homeless, our school systems, etc.
Refinancing would also mean more people would stay in their homes to make the refinance pay off. It’s generally a bad idea to refinance if you’re not planning to stay in your home for at least two or three more years. Fewer homes for sale would start increasing home prices for those properties currently on the market (due to supply and demand principles). The mass refinances would also result in fewer homes going into foreclosure because monthly mortgage payments would go down, making it more affordable to stay in these homes.