A man walks by a Wells Fargo Home Mortgage branch  Brooklyn. Mortgage applications are on the rise as consumers capitalize on low interest rates.
A man walks by a Wells Fargo Home Mortgage branch Brooklyn. Mortgage applications are on the rise as consumers capitalize on low interest rates. - 
Listen To The Story


Tess Vigeland: Ebenezer Scrooge isn't the only one who might see the wisdom of pinching pennies this Christmas. Plunging mortgage rates mean homeowners have a chance to lower their monthly payments, and there is a growing rush to refinance. In just the past week, the Mortgage Bankers Association saw a 48 percent jump in home-loan applications across the country. Our senior business correspondent Bob Moon has that story.

Bob Moon: Mortgage applications don't necessarily translate into actual home sales. Just ask Emily Kinzig of Nashville, Tenn. She and her husband Brett have been trying to buy a home since Thanksgiving, but the banks keep finding reasons not to lend. It's beginning to make her worry about what the loan process itself is doing to their credit.

Emily Kinzig: Every time they make another credit inquiry, from what we can tell it's affecting our credit score a little bit. And we both have excellent credit scores, so to see it go down a few points every time a new inquiry is made, it's a little disheartening.

It's a cautionary tale of why home sales are still down, even amid a surge in mortgage applications. Home purchases accounted for just 11 percent of last week's application rush. Overwhelmingly, homeowners are refinancing.

Spencer Rascoff tracks mortgage rates on the Web site zillow.com, and with borrowing costs now the lowest in five years, he knows what he wants for Christmas: A lower house payment.

Spencer Rascoff: My message to any homeowner out there is, 'Re-fi now, re-fi now, re-fi now.' These are very low rates -- they may get a little bit lower but, you know, trying to time that market bottom is almost impossible. I personally am going through a re-fi right now, if that's any indication. This is a big Christmas present to homeowners.

It turns out it's primarily those who haven't gotten themselves in over their heads who are now seeing the benefits of the Federal Reserve's moves to bring down interest rates. But Rascoff points out this could head off even more foreclosures and help everyone.

Spencer Rascoff: The typical homeowner who refinances now and takes advantage of these low rates will face lower monthly payments and potentially avoid a costly reset of their adjustable-rate mortgage, which might have increased their payments in the future. And that will, of course, leave them with more disposable income, better able to pay off their credit card debts, and better able to hopefully consume, and hopefully get the economy going again.

In the end, Rascoff says that's the best way to rebuild the housing market.

I'm Bob Moon for Marketplace.