Saving for a Downpayment? What a Quaint Idea
The Aspen Institute Initiative on Financial Security (Aspen IFS) briefed legislators on Capitol Hill July 27, 2010 about a quaint idea: Why not get home buyers to save up for their mortgage down payments? Of course, many are likely to see the proposal as a return to traditional standards, and applaud it. But three issues spring to mind:
- Will home buyers sit by and watch when today's lowest mortgage rates eventually start to rise?
- Interest rates on deposits are so low at the moment that there's little incentive for anyone to save.
- Aspen wants to offer "a modest incentive of a 50 percent government match to savings with a lifetime limit of $5,000". How will that go down with the Tea Party?
When Zero Downpayments Could Be Dangerous
Fox Business ran a story July 26, 2010 about the possibility of a second housing crisis. It cited zero-down-payment deals granted by the Department of Veterans Affairs (VA) on mortgage loans of up to a million dollars as a particular worry. Of course, those jumbo loans are exceptional, and the average VA mortgage is only $207,000.
The point Fox was making is that affordable mortgage programs, which require little or no down payment at the Department of Agriculture, Federal Housing Administration, and VA, have added about a trillion dollars of possible liabilities to the nation's books.
Pregnancy Not Necessarily a Bar to Mortgage
Last week, this column ran a story ("Mortgage Loan Applicants May Face Pregnant Pause") that had first appeared in the New York Times. It described how some lenders have allegedly been refusing mortgages to pregnant woman. The Times carried a follow-up piece July 21, 2010 that said the the Department of Housing and Urban Development (HUD) was looking into these allegations, "to see if any prospective borrowers had been illegally denied a mortgage because they were pregnant or on short-term disability."
And it quoted Vice President Biden as saying: "Denying a mortgage to people just because they're having a baby is flat wrong."
A July 26 feature in the San Francisco Chronicle posed a question that has been asked here at Shoprate.com on more than one occasion: at a time when home owners have access to the lowest mortgage rates for more than half a century, should they be thinking of refinancing?
The answer was a qualified yes. Generally speaking, current mortgage rates provide a great opportunity to refinance, but you need to work out the break-even period (the time it will take you to claw back your refinancing costs) before you commit yourself.
If you'd like to make a start on that calculation, you can compare mortgage rates here.