Mortgage loan officer Anne Noble's telephone is ringing off the hook. With interest rates hitting two-year lows, it's not only an ideal time to buy, she said, but for many homeowners the lower rates make for the perfect time to refinance. "In the last two days I worked about 25 hours with all the applications coming in," said Noble, who works for Eagle Nationwide Mortgage Co. out of her Summerville home office.
The Mortgage Bankers Association said this week that refinancing applications are up 92 percent nationwide since the beginning of November. That compares with purchase applications that are up just 7 percent. During the past week, refinancing applications accounted for 66 percent of total applications, up from 62.7 percent the previous week. The Federal Reserve's unexpected reduction of the overnight bank lending rate by three-quarters of a point to 3.5 percent this week doesn't necessarily mean mortgage rates will fall by a similar amount. Mortgage lenders tend to peg their rates instead to other factors, such as the yield on the one-year Treasury note.
However, the central bank's action, engineered by Fed Chairman Ben Bernanke, was a response to worrisome economic and credit market developments that also have been pushing mortgage rates lower in recent months. Interest rates for some home loans have fallen sharply since the summer. Rates on 30-year fixed-rate mortgages neared 5.125 percent this week, down from 5.5 percent last week and from 6.3 percent a year ago.
For homeowners who plan to stay in their home for the foreseeable future, for example, refinancing can be a money-saving option, said Kevin Brookes, a mortgage loan counselor with Wachovia Mortgage Corp. in Charleston. Brookes said a client who bought a home only four months ago and already wants to refinance. Under the right circumstances, the savings can be "amazing," Brookes said.
For example, a homeowner with a $400,000 loan paying interest at 6.5 percent could shave a full percentage point off that rate. That could trim the monthly payment, depending on the type of loan, from about $2,500 to about $2,250. Refinancing inquiries have accounted for about 70 percent of Brookes' business this month. As recently as October, that share was only about 30 percent, he said. "These refinancing booms come along every four to five years," Brookes said. "I think we've just hit one."
In general, a mortgage is deemed "refinanceable" if it is 0.40 percentage point above current average mortgage rates. And the recent drops in mortgage rates have made up to 7 million mortgages, or more than 70 percent of U.S. mortgages, eligible for refinancing, according to Tony Crescenzi, a fixed-income analyst at Miller Tabak.
At New South Mortgage Corp., branch manager Jason Fralix said refinancing inquiries now account for about 60 percent of business in his Mount Pleasant office. Before Christmas the number was about 30 percent, he said. Many people are choosing to stay in their homes and refinance to lower monthly payments because they feel they wouldn't get the right price in the sluggish real estate market. Also, more owners are looking at refinancing into adjustable-rate mortgages, or ARMs, in favor of fixed-rate loans, he said. But Fralix cautioned that borrowers should think carefully before assuming that refinancing is right for them because they might not see any savings.
The interest charged on ARMs, for instance, is not fixed for the term of the loan. Rather, after the introductory fixed-rate period expires — typically in three or five years — rates automatically adjust up or down to reflect prevailing market conditions.
In recent years, many ARMs have clicked up to higher rates, a trend that many say has contributed to the real estate slump and the ensuing credit crunch. Also, the refinancing proc
Source: Charleston.net