Cutting Mortgage Payments by Refinancing Loans

Implication of Reduced Mortgage Payments by Americans

Records show that Americans are cutting their mortgage payments to use cash in consumer spending and savings.

The low rates of interest, defaults and refinancing have removed at least $100 billion from the yearly mortgage bill of the nation. This amount is comparable to one year’s worth of unemployment benefits or the Social Security tax cut on payroll for this year.

According to the Bureau of Economic Analysis (BEA), homeowners have reduced their interest payments by 11% or $67 billion worth in one year. The savings come from low interest rates. Furthermore, people save by cutting down debts through making payments of the principal amount and loan defaults. BEA further added that the total mortgage debt of the nation has been slashed from about $11 trillion in the middle of 2008 to $10.3 trillion in the first quarter of 2011.

Homeowners are cutting mortgages more slowly than adding to it during the challenges in the housing market. In 2006 alone, the borrowers took about $ 1 trillion in total principal and only $90 billion in excess interest, according to a BEA data. Decreasing mortgage payments show an economy’s reset after a housing trouble.

Savings, interest and rates are some of the economic effects of reduced mortgage debts. In terms of savings, households are able to keep more money than spend on mortgage interest since the year 1998. As for mortgage interest, it consumes about 5.27% of the after tax income of the entire nation.

This is the lowest since the year 2004 and is similar to its state in the 1980’s and early 90’s. Finally, the rates of interest on all mortgages have dropped for the past 16 quarters to about 5.96%. This is the lowest since the record of the government in 1977. This declining rate shows how borrowers restructure their loans to be able to manage credit risks better and shorten their 30 year mortgage to 15 year loans.

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