A Silver Lining When Markets Are Falling

The slow down of the nation's economy does have at least one silver lining for anyone trying to get a mortgage or refinance an existing one.  The average interest rate for a 30-year fixed loan is now 4.43 percent according to HSH.com, a website that tracks mortgage lending across the country.

That’s approaching the record low of 4.32 percent that was hit in October of last year. 

Keith Gumbinger, vice president at HSH.com, said he expected rates to continue to decline even further after the Federal Reserve announced on Tuesday it would keep interest rates low through 2013.

But the drop in rates may be favoring people who already own a home and are looking to refinance rather than those who want to buy.

“Factors which make it a good time to buy a home — like interest rates, like prices, like inventory, like the availability of a lot of choices for homes — are outweighed by a really weak job market, really difficult levels of consumer confidence and sentiment right now,” Gumbinger said. “Falling home prices are a strong deterrent to buyers wanting to jump into this market. I mean no one wants to buy a home and then find it lost $10,000 of value in the next couple of weeks.”

That may explain the surge in refinancing applications last week.  The Mortgage Bankers Association said total applications for mortgages surged by 22 percent last week.  Overall, however, requests for refinancing made up three-quarters of the total.

Getting approved for a loan, however, remains the challenge.  In fact, the announcement by the Federal Reserve could leave some banks choosing to fund fewer long-term loans like mortgages.  The banks fear that when rates eventually do rise in the years ahead, they could be left holding loans that bring in less money because the interest rates on those loans are equal to or even less than the interest rate paid on savings accounts, for example.

"When you get down and you are playing in these lower rates environments banks are very very careful on putting loans on at that level," said Paul Miller, a banking analyst with investment banking firm FBR.  "They just don’t want to do it, so therefore they just walk away from the market."