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Refinance Plan Proposed by Obama Administration Gains Steam as Refinance Rates Decline

A stalled proposal to help homeowners refinance their mortgages to a lower mortgage rate is gaining steam in the Senate. Refinance rates on all types of mortgages have hit record lows recently but millions of homeowners are unable to refinance their loan either because they don't have enough equity in the home or are underwater on their mortgage, owing more than their home is worth.

Refinance mortgage rates today on 30 year conforming loans are averaging 3.52 percent and there are lenders offering 30 year conforming refinance rates well below the average. Some lenders are offering 30 year refinance rates as low as 3.25 percent with points.

Back at the height of the housing bubble in 2006, average 30 year mortgage rates were around 6.50 percent and just last year average 30 year rates were around 5.00 percent. If you bought a home between 2006 and 2011 the mortgage rate on your loan is higher than current mortgage rates but you're probably unable to refinance because the value of your home has declined since you bought it.

There may be help in the Home Affordable Refinancing Program (HARP) which would allow you to refinance your mortgage with any lender through a government program. The program would allow homeowners to compare the lowest refinance rates available and not be limited to their current lender.

 This program will also allow homeowners to refinance with a higher loan-to-value ratio than the traditional 80% LTV that most lenders adhere to these days since the new loan would be backed by Freddie Mac or Fannie Mae. The fees charged by Freddie and Fannie for refinancing would also be reduced.

Bloomberg reports that the Obama administration is urging senators to vote as early as this week on expanding the Home Affordable Refinancing Program to include the new proposals mentioned above.  Democratic leaders are also considering adding the expansion to their agenda for the two-week Senate session.

The economy would get a jolt if these proposals are enacted. Millions of homeowners would have more disposable income because of lower monthly mortgage payments. For a typical homeowner with a $200,000 mortgage and a rate of 6.50 percent, the monthly payments are $1,073.64. Refinancing $200,000 to a 30 year loan at 3.25 percent, the monthly payments would be $898.09, a savings of $175.55 per month.
Author: Brian McKay
September 11th, 2012