Why does the President want you to Refinance now?

Last Thursday, President Obama sat down with some homeowners who had recently refinanced their mortgages to declare some 'good news'. "We are at a time where people can really take advantage of this", he said. As far as I can tell, the President gets to live rent-free in the White House, so why is he urging refinances now?

Some quick back of the envelope calculations may give a hint. There are over $10 Trillion in outstanding mortgage debts in the US. $6 Trillion of that is under the guidelines issues by Fannie Mae / Freddie Mac with an average interest rate of 6.5%. If all those loans could be refinanced at 5.0%, it would save homeowners $900 million a month in interest charges. (The savings on a $200,000 mortgage dropping from 6.5% to 5.0% would be $190 per month). Let's hope that half of all the mortgages outstanding could qualify to refinance, and that half of those who can qualify, do. That results in $2.5 Trillion new mortgages this year with interest savings of $375 Million per month. This $375 million can then be used for further reducing debt, investing, or spending. I think the government prefers the last option, as consumer spending would cause the economy to grow.

The other factor I didn't mention is that many people who refinance will be able to and choose to extract additional equity from their home to pay of 2nd mortgages, credit cards, or to fund home improvements. This extra cash flow entering the economy will further expand the impact of refinancing now.

So, if you are wondering why does the president care if you refinance, think of the benefit to you personally, and to the country as a whole, if even just half of those who could benefit from a refinance get that done this spring.