The homeowners’ financial obligations ratio has also remained relatively constant despite this very rapid growth in mortgage debt, partly as a result of an enormous wave of refinancing of existing mortgages, which ended only in the fall of 2003.
Refinancing has allowed homeowners both to take advantage of lower rates to reduce their monthly payments and, in many cases, to extract some of the built-up equity in their homes. These two effects seem to have roughly offset each other, suggesting that homeowners might set a target for their mortgage payments as a proportion of income and adjust their borrowing accordingly.