Understanding the Mortgage Industry in a Slow Economy

The way that the mortgage industry in a slow economy works is completely different than when the economy is normal. When business slows down to a crawl, the mortgage industry has to rethink the way that it does business. They can't continue to go about things in the same manner when times are tough. If they do, their business will soon be gone. Here are a few things to keep that will help you understand how it all works

Credit Tightens Up

The biggest change in the market is that banks tighten their purse strings a bit. They still need business, but they are more cautious about who they lend to. You have to remember that the requirements to get a loan are much stricter than before. Part of the reason behind a slow economy in the first place is because of the bank's relaxed lending practices. Therefore, during the slow economy, they are going to be much more picky about who they lend to. 

Banks Compete For Good Lenders

During the slow economy, you are likely to see a lot of incentives being thrown around. Banks and mortgage lenders will send out flyers and advertisements for great deals. While they might be mass marketing, that doesn't necessarily mean that you will be approved. Even if the flyer says something about you being "pre-approved", you will still have to be officially approved. The banks are trying to get their hands on the best borrowers out there. They want the people with the best credit scores and the best credit history. Therefore, if you fall into this category, you can get some amazing deals.

Lower Interest

Many times during a slow economy, the Fed will lower the national interest rate. This is the rate that they loan money to banks at. Therefore, the banks will be able to loan you the money at a lower rate as well. If you fit the lending criteria, this can be a great time to take advantage of the low interest. You might not see interest this low for a number of years. Therefore, if you were thinking about buying a house or refinancing your existing mortgage, this is a great time to do so. Even if it's only a point or two lower than your current mortgage, it could be worth it. You will receive a lower payment every month, which can add up over the course of 30 years. 

Mortgage Brokers Close

As a result of the slow economy, many companies that were thriving during the good times go out of business. This results in a lot of reorganization and change. If you have a mortgage with one of these companies, it might be a little confusing for you at first. If a company goes out of business, they will sell all of their mortgage to another company that is still in business. Therefore, you will have to make your payment to someone else from then on.