mortgage debt

Mortgage Refinancing and Its Impact on the Average Mortgage Debt Score

Mortgage debt, considered “serious delinquency” by lenders, has reached an all time high of more than $9 billion a year. Student loan debt was targeted specifically by loan forgiveness programs as a form of consumer debt relief. Now, with student loan debt at an all time high, homeowners are seeking other forms of debt relief. Here are some possibilities.

o Average Credit-Card Debt. National averages for credit card debt have been rising for several years. Homeowners may be turning to student loan debt consolidation to bail them out of the mounting national average credit card debt.

o Increase in Unemployment Rate. With an increase in national average hourly wages, more people are earning more money. The unemployment rate is expected to rise above 4% this year and perhaps much higher in coming years as the economy improves.

o Increase in Marginal Utility of Money. The average credit card borrower is now spending more money on unnecessary purchases than ever before. Consumers are using their credit cards to purchase “stuff.” Homeowners may use their homes as collateral to take out a mortgage for credit-card debt consolidation. The reduction or elimination of credit card debt can significantly reduce unemployment.

o Increase in National Debt. The national debt is approaching the total amount of all of the household credit card debt. The Federal Reserve bought a record $600 billion dollars of government bonds and mortgage backed securities in the first half of this decade. Interest rates on student loans and auto loans are also rising due to increasing numbers of consumers with bad, subprime credit cards and no employment experience.

o Decrease in Purchases. Consumer debt rose at an annual pace of about three percent in the third quarter of this year. Consumer debt rose at a faster rate in the second quarter. The outlook for gross domestic product growth is said to be on a slow but steady growth in the next two years.

o Decrease in Employment Rate. The unemployment rate rose to 7.1 percent in the third quarter this year, up from its already high level of 6.1 percent. With a decreasing labor force, the economy will have less purchasing power when the effects of population control kick in. Population control is intended to stop an exponential rise in the cost of healthcare and other services required by an aging population.

o Decreasing Consumption. Consumer debt is mainly driven by increasing expenditure on goods and services and decreasing consumption on goods and services. If more people begin to spend more money, the cost of goods and services will increase and the economy will be even further affected by a slowing economy. Inflation will also rise if more people have access to credit-cards to pay for their purchases.

o Decreasing Consumer Spending. Consumer debt levels have reached an all-time high in the third quarter of this year. This may reflect an increase in spending by individuals on items that have increased in price since the first half of the decade. Another possible reason for the slight decrease in total debt is that household income has declined slightly, resulting in less expendable income to pay off debts.

o Credit Card Debt and National Average Credit Score. A sharp increase in the number of credit-card delinquencies over the past five years could mean that there is a decline in national average credit scores. Credit-card debt is usually the largest source of unsecured debt. If more people are unable to pay their loans off, the national average credit score will fall.

o Decreasing Federal Spending. The federal government continues to pump billions of dollars into the economy each year, but recent increases in spending, like the ones recently implemented by Congress, have resulted in higher inflationary pressures and more consumer debt. The Consumer Financial Protection Bureau recently reported that the average credit score of families experiencing the largest increases in credit-card debt is falling. Federal borrowing is also outpacing national capacity to repay it. If this trend continues, borrowers may find that their borrowing is increasingly difficult to repay.

o Decreasing Popularity. Consumers’ borrowing is becoming more costly as the unemployment rate of the country climbs. The combination of the rising cost of goods and services and the rising unemployment rate makes it harder for families to make ends meet. The rising cost of borrowing will likely result in more mortgage refinancing applications and, subsequently, more mortgage debt refinancing. This will further increase average mortgage debt rates and widen the gap between homeowners willing to borrow and those who can ill afford it.