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125% Loan-To-Value Refinance – Will It Help?

Posted on | July 2, 2009 | 5 Comments

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On July 1st, 2009, President Obama announced that the refinancing part of the Making Home Affordable plan was being adjusted.  When the plan was first released in March, lenders were urged to let home owners with a 105% loan-to-value apply for a home refinance and likely get a low rate refinance.  Obviously this was not enough as it has been up to 125%.  Lets crunch some numbers to try and explain the different.

If you bought a $300,000 home in 2007 and you have paid $15,000 in principal since your purchase, you would have $285,000 of loan left to pay.  If you recently got your home appraisaed and the value was $245,000 you have a 116% loan-to-value in your home.  If this was the case prior to July, you would have no chance to refinance at ANY rate, no less a low rate.  Now that President Obama has extended the Making Home Affordable plan, you have a chance to refinance and it is likely that you will get a decent rate as the government is forcing the lenders hand.

The question that we all must ask is “will this help?”  My answer is no.  Unfortunately it does not matter how low of a rate you allow home owners to refinance at, there is still too much supply on the market.  As long as housing supply outpaces demand, we are going to see a decline in home prices.  To make matters even worse, the 10 year treasury looks to be getter very close to support levels which means we could see a strong short term uptrend soon.  If the 10 year uptrends, you can be sure that average mortgage rates will follow.  This means that home prices will come down even more.

The 125% loan-to-value refinance plan will help many to refinance, but overall I do not think it will help the overall housing market or the economy.  Big time job losses were reported this morning and I will have much more to come on that issue….

Category: 10 year treasury rate, Refinance
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Comments

5 Responses to “125% Loan-To-Value Refinance – Will It Help?”

  1. Making Home Affordable Gets Upgrade : Yielding Wealth - Personal Finance Tips - Money Management Advice
    July 2nd, 2009 @ 9:17 am

    [...] to value ratios. Yesterday Obama made a move to expand the Making Home Affordable program. Now, those with a loan to value ratio of up to 125% are eligible. There are also continuing incentives to encourage mortgage lenders to deal with [...]

  2. Refinance at Your Own Risk - Economic Conversation
    July 3rd, 2009 @ 10:53 am

    [...] very discretionary with who they offer low rates to.  I would be willing to bet that if you have 125% loan-to-value on your current mortgage, your refinance rate will be NOTHING close to those low advertised rates [...]

  3. Obama Mortgage Plan - How Will It Help Me? - Obama on the Dollar
    July 11th, 2009 @ 7:59 am

    [...] President Obama extended the plan to 125% loan-to-value to refinance.  This is a huge step because it means you can be 25% underwater and still have a [...]

  4. pligg.com
    July 12th, 2009 @ 10:11 pm

    Subprime Blogger / 125% Loan-To-Value Refinance – Will It Help?…

    On July 1st, 2009, President Obama announced that the refinancing part of the Making Home Affordable plan was being adjusted. When the plan was first released in March, lenders were urged to let home owners with a 105% loan-to-value apply for a home r…

  5. Farrukhj
    July 13th, 2009 @ 1:10 am

    There is a lot of information in this blog

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