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Mortgage Debt Shed in Record Time for Americans

May 17, 2011

Americans have found a way to stimulate the economy by utilizing low interest rates, defaults and refinancings. As a whole, American’s have shaved more than $100 billion off the nation’s annual mortgage bill, which equals approximately 1 year of all unemployment benefits or the tax cuts to this years social security. 
In all, consumers have cut their mortgage payments by 11% from 2008 and this trend is unlikely to slow down in the near future. Overall, this is a sign that the economy is essentially resetting itself because housing is becoming more and more affordable.

How do shrinking mortgage payments stimulate the economy? By simply saving this money, consumers are free to spend it on the necessities like food and clothing, so the money is going to main street as opposed to wall street.

There are primarily 3 places in which this aids the economy:

Savings. People are saving more than they are spending on mortgage interest.

Interest. Mortgage interest consumes approximately 5.27% of the nation’s after-tax income.

Rates. As previously discussed, the national mortgage rates are falling, falling, falling. The tumbling rate reflects borrowers restructuring loans to become better credit risks and shortening their mortgages.

“Households are managing their debt down by bringing cash to the table to qualify for super-low rates,” Mortgage Bankers Association economist Michael Fratantoni says. Consumers have started borrowing more for cars, appliances and other big-ticket items in the past two months but not for homes, Fratantoni says. “Consumers are cautious.”

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