Mortgage rates are so low! So why aren’t people applying for mortgages?

Since last August, America has yet again fallen into another economic slump. It somehow seems all too soon with the 2008 recession still fresh on our minds, but with the ongoing debt issue in Greece and the instability of the European market, it seems rumors about another recession may not be too far from the mark.

 

One consequence of a bad economy is of course, a poor housing market. This results in lowered mortgage rates, making today the perfect opportunity for home buyers and refinancers to take on a new mortgage. And if that isn’t enough, large banks are now slashing fees on closing costs, making the acquisition of a new home more affordable than ever.

 

Recently, Capital One Bank waived some of their closing fees for refinancers, resulting in a whopping savings of $3,300 on the average. Bank of America and Citibank also placed a discount on their fees by as much as 0.75 percentage points. Mortgage rates are also hitting record lows week after week. Just a few days ago the benchmark 30-year fixed rate mortgage fell to 4.21 percent, this is one of the lowest rates that the nation has ever seen for the past 50 years. However, despite these ridiculously low rates and tempting offers, bankers remain puzzled by the lack of mortgage applications. The question now is, why aren’t mortgage applications coming in by the bulk?

So why aren’t people applying for mortgages?

 

There are several reasons why mortgage applicants are keeping their feet out of the water. First of all, potential borrowers are still wary of the economy’s current standing. Although the problem lies mainly in Europe, this still holds a negative impact on the US stock markets. Potential homeowners are also aware of the poor resale values their new homes might have. Since the peak of the housing boom in 2007, homes have lost nearly a third of their value.

 

This instability in housing prices have borrowers wondering if they will be paying too much for their home in the long run.   The second reason why mortgage applications haven’t risen as expected is clearly because of unemployment status.  No matter how low mortgage rates are and how juicy bank promotions will be, the bottom line is that many potential homeowners just can’t afford to get a new mortgage.

 

America’s unemployment rate is currently at 9.1% last September, when supposedly the average since 1948 is only at a low 5.7%. This means roughly 14 million Americans without a job. Aside from that, private payrolls rose to only 100,000 jobs per month which is half of the rate posted earlier this year.   And finally, the irony of it all lies in the qualifications that banks are setting. Apparently the incentives that banks are offering come with a catch. For those who wish to avail of Bank of America’s offer, borrowers must at least have $50,000 in savings. Other banks are also looking to give their low mortgage rates to those who have near perfect credit scores.

 

With all these setbacks that are causing a halt on mortgage application, it is interesting to note that there are some consumers who are simply waiting out for an even lower rate to come their way. It has also been reported that some banks are not yet releasing the lowest rates they’ve got simply so they wouldn’t be overwhelmed by the number of loan applications.  Apparently there are a number of reasons why loan applications haven’t risen as expected.  It now is a question of which among these reasons is the most prevalent.  

 

What about you? What’s keeping you from getting a new mortgage or refinancing?

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  • I wish I lived in a different part of the country. I live in one of the most expensive places and with my family's income, it is far from even being able to consider paying a mortgage. Otherwise, I would be jumping on board.

  • YFS /

    I'm in DC so prices definitely aren't cheap. If I had to guess.. you either live in CA or NY 🙂

  • Suba /

    I live in CA and it is still ridiculously expensive here. We are not buying until we move to a cheaper cost of living area. Otherwise, you are right, the rates are at a historic low, we would definitely buy if we lived anywhere else. Oh well… at least it is motivating us to see where we want to move…

  • Most homes are underwater so they can't refinance. I don't want to pay PMI.

  • YFS /

    Smart move. Tons of people buy a home without factoring in quality of life or cost of living. We decided to move a bit further out. Which, allows us to accomplish our early retirement goals. If we planned on working until 60 or 50 we probably would have bought 2x the home.

  • Wow that graph is crazy…! I had no idea it was this bad.

    Great post!

  • chris /

    When you make under $35,000.00 and around $25,000.00 AFTER taxes, there is just not a feasible way to get a "better house", hence a mortgage. This is the same wage my husband made 20 years ago and we don't ever expect it to get any better. We are in Arkansas where $35,000 before taxes looks like good money, but only if you want to live in a trailer.

    If there were loans with NO interest, maybe, just maybe EVERYONE could and would eventually OWN a home. Right now I don't see us ever actually owning a home, meaning we owe $0.00 for it. And in truth I don't know anyone who actually owns their home.

  • Mortgage rates are so low! So why aren’t people applying for mortgages?…

    Since last August, America has yet again fallen into another economic slump. It somehow seems all too soon with the 2008 recession still fresh on our minds, but with the ongoing debt issue in Greece and the instability of the European market, it seems …

  • We currently own but the only way I'd buy another house is to rent it out to someone else. Otherwise, I'll continue being a happy renter and smart landlord. I am most concerned about govt regulations that will change the way we current view and operate home-ownership. This includes federal and state tax laws. Just not worth it to me

  • Kacie /

    We did. We bought our first house and closed in Sept. 2011. It really was a buyer's market here and I think we got a great value on our house, and our mortgage terms. We were blessed to be able to put 20% down.

    Hope to be here awhile!

    Before that, though, we were content to being renters. Renting is not that bad! I think home ownership is put on a pedestal.

  • YFS /

    Congratulations on your new home! The first home is always the most memorable one. I bought my first home (primary residence) in January of 2009. The mortgage rates back then weren't as favorable as they were now. fortunately I was able to take advantage of the interest rates and get into a 15 year fixed at 3.375%.

    I'm curious, what kind of mortgage rate and terms did you go with?

  • Kacie /

    We have 4.5% on a 30-year. We considered the 15-year but we just wanted to have better cash flow. I hope it was the right decision.

    We qualified for the Mortgage Credit Certificate, which gives us a 20% tax credit on the amount of mortgage interest we pay each year.

    So, for 2012, we'll get between $1200-1300 off our federal taxes because of this credit, AND we can still take the mortgage interest deduction that everyone else gets.

  • YFS /

    Why not refinance the home you own to take advantage of the better rates and to increase your cash flow?

    For example, if you currently have a 6% 30 year fixed rate loan and currently mortgage rates for 30 year fixed are 4% doesn't saving 2% on your mortgage makes the most sense?

    Regardless, of what the Federal and State tax are, you would have to deal with them.

  • With what equity? LOL! No, I am referring to the new regulations that might come down the pipeline that will change the current structure of homeownership.

  • YFS /

    Well the no equity thing is a whole different story :-). Which regulations are you referring too that will change the current structure of home ownership?

  • YFS /

    The decision between the 30 and 15 year mortgage is a personal one. We choose the 15 year because it coincides with our other goals and we didn't need the cash flow. Arguments can be made for each choice.

    What Mortgage credit certificate is this? Is this a federal thing or state thing? I wonder if the mortgage interest would be enough to offset the standard deduction you already get.

  • Kacie /

    The MCC is a certificate issued by my state (Indiana), though other states do offer it. But, the credit comes out of my federal income taxes.

    We qualified because our household income was less than the median for my county.

    It's a huge chunk of money back in our pockets, since it is a credit. And, we don't need to itemize for it. We'll itemize this year and probably next, but I don't know that we'll be able to for long.

    The purchase price of our house was $165k. We took out a mortgage of $132k. If we never make extra payments (which, we WILL make extra payments), the MCC will save us $22k off the lifetime of the loan.

  • YFS /

    The 20% credit is for the life of the loan? That's amazing that you don't have to itemize to get it. That's very beneficial because you get 11,500 from the standard deduction. Unless you have other deductions it might be hard to exceed the standard deduction with your mortgage loan of 132k.

  • Kacie /

    Yep, for the life of the loan, even if our income goes up! We lose it if we refinance, though it's possible we could apply for it and get another one, I don't think we'll qualify in future years.

    In 2012 it looks like we'll have around $5k in mortgage interest. We don't have PMI. So yeah it'll be tricky to itemize in most other years.

    I wish more first-time homebuyers knew about this program and took advantage of it. I only knew about it because my parents did it with their first house years ago.

    Not sure what states besides Indiana offers it, but in a lot of areas there is first-time homebuyer money to some extent (either down payment assistance, or better interest rates, or whatever). You just have to dig around to find it.

  • YFS /

    Wow, that's amazing great find!

  • Ross /

    I have not yet decided on taking a mortgage. We are still uncertain if we can always have no problems with the payment; I'll wait for a while until we have a more stable finances before we make a move.

  • YFS /

    If you're uncertain, do not take on the mortgage. You can always test your readiness by acting as if you have a mortgage now and putting the difference in savings. If you can do it for 6-12 months then you might be ready.

  • Very interesting article, I admit it, it is hard to understand why people aren't applying for mortgages, while they all are complaining about unemployment and the recession. They just would have to look around. Or read your post;)

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