When deciding whether you should refinance your mortgage, you may look to your friends, family, and neighbors to see what they’re doing and/or to get advice.
After all, if they’re refinancing, maybe there’s something to it. But when it comes to financial advice, it doesn’t get much better than the Chairman of the Federal Reserve, Ben Bernanke.
Okay, okay, we know, he destroyed the economy and got us in this mess so we shouldn’t believe a word he says, right? Well, that’s up to debate, and that debate won’t take place here.
But the takeaway is that he and the Fed control monetary policy, and thus should have a good idea as to whether mortgage rates will be heading higher or lower.
And so this may explain why Bernanke has refinanced his mortgage twice in the past two years.
He purchased the home for $839,000 all the way back in 2004 and currently holds a $672,000 mortgage.
At the same time, it doesn’t appear that he’s been all that aggressive in paying off his mortgage. Perhaps he feels his money is better served in another financial instrument.
He Refinanced After “Operation Twist”
Back to those refinances…Bernanke refinanced his mortgage in late 2009, and then shortly after the Fed announced “Operation Twist” this past September.
Put simply, Operation Twist was the shifting of Fed holdings from medium-term bonds to long-term bonds, such as the 10-year bond.
When demand for bonds rise, associated interest rates fall. And these interest rates are tied to mortgages, and thus rates fell.
So Bernanke’s second refinance happened around the time the 30-year fixed dipped to its current level of roughly 4% even.
And it has held pretty steady since that time, and likely won’t drop any lower. In other words, it appears as if Bernanke is in a pretty good place with regard to his mortgage.
He has a rock-bottom interest rate and positive home equity, albeit not a lot. But considering how bad things got, he seemed to do okay with his own personal finances.
Hopefully that means things will eventually improve for the economy as a whole, but as we all know, not everyone was so prudent in their decision-making.
And probably won’t ever pay the money back, simply because they can’t afford their inflated mortgage payments and/or see no hope in recouping their home’s once sky-high value.
(photo: Medill DC)