patrick.net

That's pretty simple. When you pay back a mortgage you aren't buying goods and services that soemone else has to provide. Which in turn provides jobs. Which gives someone else a paycheck that they will use to buy goods and services. etc.

I hate to admit it, but yes I agree, refinancing should help the economy.

The main problem is that interest payments mostly go to some very rich institutions and inviduals and they just don't spend the money. They have mountains of cash already and don't know what to do with it.

The middle class, on the other hand, is very likely to actually spend it soon and cause economic activity.

This is why concentration of wealth also slows down the economy.

My bank is letting me refi from 5% to 4% which will save me $220 a month. Thats a decent amount. In 3 months I'll save enough money for a nice extended weekend trip like to Yosemite or San Diego.

Unfortunately, with increased health care costs, insurance, etc and no raise for 3 years the reality is most of the $220 per month will go to negating those increases.

But, some of it will find its way to my local favorite pizza place or mabye a silver coin or two. So overall I think its still a positive to be fortunate enough to re-fi

Don't think most people will even spend the money.

On top of that rates are already all time low, so don't think it will help enough to offset the other fundamental problems government is not solving.

http://online.wsj.com/article/SB10001424052970204831304576596673834432368.html?mod=WSJ_WSJ_US_News_5#articleTabs%3Darticle

Refi all you want, this is where the savings will go.

OK, I have to agree with that too, from my own experience with skyrocketing premiums. Seriously, the biggest threat to continuing to work on the website full time is the lack of reasonable "free market" health insurance on my own.

So the middle class is being milked like cows in a barn, with the milk being interest on debt and medical premiums.

You can pretty much draw a straight line between how much you are being overcharged for something you need, and how much those people who are overcharging you are bribing congressmen to keep you trapped by law:

http://www.opensecrets.org/orgs/list.php?source=patrick.net&order=A

The solution IMHO is publicly funded campaigns, so that congressmen don't have to take the bribes to pay for their re-election.

no kidding. wow! Interesting how all the big boys simply donate to both sides to keep it going.

Entire healthcare sector bribes both sides about evenly.
They can't lose.

And I have to admit that the Democrats do look like they're taking an awful lot of money from unions.

OK, I have to agree with that too, from my own experience with skyrocketing premiums. Seriously, the biggest threat to continuing to work on the website full time is the lack of reasonable "free market" health insurance on my own.

Insurance premiums always rise after an economic downturn. The way insurance premiums are determined is through complicated actuarial math. The insurance company projects what its investment income will be off of premiums to determine what it needs to cover costs and make its target profit. If the investment income is lower than expected, as it may have been for the last 3 years or so, it's pretty obvious that premiums will go up.

This has nothing to do with the usual things blamed -- lawsuits/payouts, Obamacare, the price of MRIs, illegal immigrants in ERs, etc. It's all complex math.

corntrollio says

This has nothing to do with the usual things blamed -- lawsuits/payouts, Obamacare, the price of MRIs, illegal immigrants in ERs, etc. It's all complex math.

I don't buy this argument. While the circumstantial, black-box math *may* play a role in recent skyrocketing health care costs, I have a hard time believing it is the only driver.

I'd like to see the formulas.

corntrollio says

This has nothing to do with the usual things blamed -- lawsuits/payouts, Obamacare, the price of MRIs, illegal immigrants in ERs, etc. It's all complex math.

"Obamacare" actually is part of the increase. It's part of the math cornntrollio, and that comes straight from the horses mouth. There are other factors included as well such as trends, retention, claims, etc... but the new healthcare reform is an additional cost that is part of those factors.

Hospitals pass those to the insurance, insurance passes it to the insurance consumers.

FortWayne says

"Obamacare" actually is part of the increase. It's part of the math cornntrollio, and that comes straight from the horses mouth. There are other factors included as well such as trends, retention, claims, etc... but the new healthcare reform is an additional cost that is part of those factors.

The vast majority of Obamacare hasn't even gone into effect yet. Are you saying that requiring 26 year olds on plans is raising costs significantly even though some states already required them to be covered (I believe NJ requires coverage through age 30 at least) and 26 year olds generally don't require a lot of healthcare? If not, what provision? Surely you've had a chance to read the whole law in the last couple years? Who's the horse? Mr. Ed?

terriDeaner says

While the circumstantial, black-box math *may* play a role in recent skyrocketing health care costs, I have a hard time believing it is the main driver.

http://makethemaccountable.com/myth/RisingCostOfMedicalMalpracticeInsurance.htm

Read the excerpt from the Boston Globe -- the first reference at that link. There are studies on this, and they confirm this, even though it's perfectly obvious to anyone who understands how insurance works.

The last excerpt at the bottom of the page is also quite instructive for those ideologues who think tort claims raise insurance rates, although many of the excerpts discuss that fallacy.

I suspect that the biggest driver of increased premiums is an "adverse selection death-spiral" as one article put it.

Premiums went up, so young healthy people dropped coverage.

So premiums go up again to compensate, and the next tier of not quite as young or healthy people drop coverage.

Eventually you'll get only very sick people wanting to pay for insurance, but the rates will literally not be payable at all, even with their entire incomes.

So that's why there has to be either:

1. A mandate that everyone buy insurance, even the young and healthy, or...
2. A taxpayer paid plan for everyone, like Medicare for all.

I think a government option is probably the best combination solution. Don't like it? Just go buy private insurance -- if you can. But everyone would have to have one or the other.

lack of reasonable "free market" health insurance on my own.

There will never be cheap "free market" insurance in America. Insurance co. knows big bucks are with corporate America,so get most out of them and the rest from insured. Insurance co have a strong bond with the very politicians we vote for our interest,but it does not work like that ever.

Technically refi's would stimulate the economy but at this point its more about finding new ways to bail out the banks at our expense.

They'd more bang for the buck stimulus wise if they just gave the money to regular people rather than the banks via refis/bailouts/loan forgiveness.

Agree about the insurance companies preventing good and cheaper public healthcare from ever taking off too. We spend double what everyone else does in the rest of the world and get nothing to show for it. Fixing the insurance mess would stimulate the economy massively as well.

Obamacare still lets the health insurance giants collect big bucks from the healthy employed, leaving the government to pick up the tab for the indigent and elderly. Indigent would include those unfortunate enough to lose their jobs because they are too sick to work and too poor for COBRA type relief.

Is it a surprise that most people die after they are old enough for Medicare and that most people spend 98 % of the money they ever will spend on healthcare within the last six months of their lives? The insurance companies skim the cream off the insurance dollar by, as much as they can, only insuring the young healthy and the working. When you're old and sick, you turn to the government. Too bad we can't benefit the organization that takes care of us when we're old and sick while we're still young and healthy instead of turning our health care dollar over to profiteers who will move heaven and earth to dump us when we're in need. What does shared risk mean in this context?

Refi increases debt slavery. It's a clever thing. However if you talk to anyone that does these things usually they get the longest term mortgage which is a 30 year. Interest rates have something to do with it however not as much as you think The first 10 years on a new 30 year mortgage is pure interest mostly.

People used to love to do those thirty year mortgages because they were gaining equity by increased home valuation. Now however it is in negative equity where ever you go including europe now. Very much so now in Russia. So your screwed. Russia has a different way of doing things true. However everything has less value and they are in negative equity by their paper system. So your screwed.

America can beg its not really going to help. America can hope for something like war material and a fresh start in its own warped way. Ain't gonna happen.

Americas divide and conqueor by offering different issues with different candidates that appeals to the reasonable amoung us. So we are at each other is becoming very clear to a lot of people now me included. Have you ever stopped to consider that the divide and conqueoring of your own senses, minds, heads? Has led to your own conquest and slavery by the lenders and material hogs? Think about that one while the plates are being smashed on your heads and everyone is chortling with laughter. Think about that one plato.

When mortgage rates start climbing, won't the GSAs start losing money like mad? If they borrow short term & loan out long term, they have been profiting and growing like crazy off of the decrease in interest rates. They constantly have loans with higher long term rates on the books. As soon as the rates are climbing, everyone will keep their long term low rates, and the GSAs will be screwed. Am I missing something?
I don't have the figures, but I suspect that this refinance trend has to help the well off more than the working poor and middle class. This just furthers the wealth disparity. That may have some secondary effect of stifling the economy over the longer term.

If you think a refi is good for your particular situation, then you should pursue it - and millions have. I don't really understand what we are talking about here. Somehow I have the vague feeling that the issue is not whether it is an effective tool to increase a borrowers free cash flow, because that is as obvious as the nose on our faces. So what is the point here? Although not directly brought up, I think the point is that if we accept that refis are stimulative then the public ought to help those who could benefit from a refi, but can't execute the refi, principally due to lousy LTVs and lack of cash (or unwillingness to spend it) to bring it down to a level where a new mortgage could be obtained. Is this the point here? Otherwise it seems that the refi question is strictly a private matter and whether or not it is stimulative to the aggregate is not relevent to the individuals decision making process.

And I am against such public aid, except where near-perfect security can be offered...we aren't sending money off to renters or non-mortgaged owners, or to people who lost a bundle in the stock market or, for that matter, in Vegas or on the gambling "boats" much in fashion in Indiana, for example. It is unfortunate indeed that so many folks equity position on residential property is so bad, but that is by no means some unique malady that would make it a high priority for public resources.

And I have to admit that the Democrats do look like they're taking an awful lot of money from unions.

Agree...both parties just do the bidding of those with the money.

Money rules the world, not governments. Always has, and probably always will. It's all about the money...who has it, and who doesn't.

Agree with some of the other posters here. REFI, "in general" can / will increase cash flow which COULD be used to: either reduce other debt (think credit card, auto loans, etc.), increase savings, or buy "stuff".

The "buy stuff" option is what the policymakers are hoping for since approximately 70% of the U.S. economy is based on consumer spending. So, in simplest terms; if you increase conusmer spending, you increase the GDP (economy) which helps reduce unemployment among other benefits.

That said, one or more of the posters also mentioned that most of these REFIs would go with a 30 year new mortgage term. Not only does this extend a home debtors time to maintain the new debt, but also INCREASES the initial loan amount if they wrap closing costs (title search, title insurance, loan origination fee, county tax stamp, county recording fee, credit check, property appraisal, etc.). REFIs are not free! Who makes the money on these "transaction" fees? Yep you guessed it: the HOUSING MAFIA (mortgage brokers, appraisers, mortgage companies, title insurance companies, etc.).

Perhaps a better option would be to offer us home debtors an interest rate reduction on our existing mortgage without a full refinance. Basically a payment re-adjustment (like a variable rate loan that is adjusted). This would still reduce the monthly payment amount while eliminating the typical REFI fees and would not change the number of outstanding months of the original mortgage.

Other ideas?

With all of the MIP increases and added fees in FHA loan now, just since last September when I bought at 4.75%.

Rates will have to fall to 3.50% just for me to get the privilege of paying the exact same thing I'm paying now.

Talibabe says

The insurance companies skim the cream off the insurance dollar

removing the insurance companies from the equation would lower our $7500 per capita cost to ~$6000, still $2000 above Canada.

http://www.kff.org/insurance/snapshot/OECD042111.cfm

The US's Medicare's overhead is 10% IIRC, so single payer here will not give us all of that $1500 savings if we removed the insurance companies, only half.

The long pole in the cost tent is the cost of hospitalization.

Remember, it's not just about the payment they 'give' you. It's about the payment you *choose to make*. Lowering your payment on a new 30 year mortgage isn't any deal. Paying MORE, thus lowering the amount of interest you pay and raising the amount of principle you pay, that's the ticket.

If you only make your minimum credit card payment you're a sucker. If you only make your stated mortgage payment you're a sucker too.

Eggman says

Remember, it's not just about the payment they 'give' you. It's about the payment you *choose to make*. Lowering your payment on a new 30 year mortgage isn't any deal. Paying MORE, thus lowering the amount of interest you pay and raising the amount of principle you pay, that's the ticket.

Old school pragmatic economics, now that's refreshing.
That one point I would be paying more to the principal is being absorbed by the MIP increase since I got the loan.

I'm don't plan on paying down my Mortgage in a down or flat market. Most are expecting one for at least the next ten years.

Eggman says

If you only make your minimum credit card payment you're a sucker. If you only make your stated mortgage payment you're a sucker too.

Not really. Comparing mortgage debt at 4% to credit card debt at 18% is a bit of a stretch, don't you agree?

Prepaying on a mortgage is basically earning you ~3% right now (4% - tax savings). Certainly nothing to write home about. Someone who chooses to invest somewhere else is most definitely NOT a sucker.

I hate to admit it, but yes I agree, refinancing should help the economy.

Yes, but this may only be a short term fix.

But what we require is long term job creation. This is where the division in the political parties kicks in. How do you shink unemployment and create higher output/productivity ? You have to fire up demand spending by consumers and corporate/industries. One leg, consumers, wont do it alone.

Eggman says

If you only make your minimum credit card payment you're a sucker. If you only make your stated mortgage payment you're a sucker too.

Indeed. All you're doing when you refi for a lower payment on your mortgage with 27 years left on it is resetting the amortization schedule back to paying maximum interest to the bank, and minimum principal. You're making sure your UPB stays as high as possible, so when you refi again for that great rate and lower payment, they can extract maximum interest payments out of you.

If you refi for a lower payment, keep paying what your previous payment was. Most people don't understand that the loan takes 30 years to pay off not because the amount owed is so large, but because for the first 10 years they're basically taking 70-90 cents on the dollar towards your interest. People assume the interest/principal ratio is pretty consistent throughout the life of the loan, not realizing how heavily front-loaded the interest really is. Attack your principal at all times, with as much as you can afford.

Schizlor says

People assume the interest/principal ratio is pretty consistent throughout the life of the loan, not realizing how heavily front-loaded the interest really is. Attack your principal at all times, with as much as you can afford.

Millions of mortgage takers don't know this. Screw it cash only. All mortgages must be outlawed,as AF says. End the slavery.

DrPepper says

Unfortunately, with increased health care costs, insurance, etc and no raise for 3 years the reality is most of the $220 per month will go to negating those increases.

If you mean healthcare insurance premiums, then you might try esurance or something like that. We change our carrier every couple of years and always get a smaller premium. See blue cross continually raised rates until i got fed up and decided it was worth finding a new carrier. We went from $1300 to $300 a month. I still hate paying for it you know, just in case.
I want to start my own health savings plan and get rid of paying out to someone else.

bubblesitter says

Millions of mortgage takers don't know this.

Actually, millions of mortgage takers know this:

SFace says

Debt = slavery is a flawed thesis.

Oxygen says

This is why concentration of wealth also slows down the economy.

Very true.
Refinancing works only for a small group of people but I agree it can help the economy. There are still many more stimuli are needed to bust economy.
One which comes to my mind is fixing taxation mess. Portion of tax people will pay should be known from “day one”. That will help a lot for small and large business to plan ahead. Flat tax for everybody on any source of income with starting point poverty level (I presume its $11,000/y. now) should be good solution. Russia has it and its works. Get rid of thousands often doubling programs requiring other thousands of FED employee just to track it. Also will be nice have sales tax included in price. “You pay what you see”. We have it now on gas station, Europe have VAT.
Minimum health care should be guaranteed for everyone with absolutely free preventive care.

How many new cars can buy one household with 1 million in cash vs. ten households with $100,000 in cash?
Why we pay sales tax for the SAME car EVRY time when is traded? Is any value added?

KILLERJANE says

I want to start my own health savings plan and get rid of paying out to someone else.

Self-insurance is a valid option. The high deductible plan is part way to this -- you have a massive deductible that essentially serves as self-insurance unless something catastrophic happens.

I don't think it could work in the US.

Your costs for a major illness can easily go over $1 million, because we charge so much more for health care than any other country on earth (with worse results, BTW).

I think the solution is publicly funded elections and a ban on private campaign contributions. That would take most of the corporate lobbying out of the picture, and allow Congressmen to do rational things, rather than to jack up costs with laws that please the pharma, hospital, AMA, and insurance campaign donors.

rather than to jack up costs with laws that please the pharma, hospital, AMA, and insurance campaign donors.

Costs aren't jacked up, profits are.

And profits are high because being in good health is worth a lot.

Patrick, Is it possible (this must be done already) for self employed people/unemployed people to 'ban together' to form a 'company' on paper that they 'work for' for the sole purpose of getting decent rates on a large group medical policy?(not talking illegal, just a co-op )

We all know large companies get the best rates since they have bargaining power with 30,000 employees. So the individual has zero bargaining power. Maybe there exists some type of bargaining/health co-op for the sole purpose of getting the same rates that GM or Apple employees get? even without the employer subsidy the rates would be way lower, no?

millions of people only keep 'working for the man' due to this issue of too expensive insurance. its crazymaking for sure.

Yes, people have tried:

http://prescriptions.blogs.nytimes.com/2009/08/17/so-whats-a-health-insurance-coop-anyway/

But I think it could be done if you were determined and organized. After all, you get your health care locally almost all the time. You can literally walk or drive over and talk to the peopel you want to deal with.

Assuming that Refi really does stimulate the economy, how does one do that when they are underwater in their mortgage??