Here in Bell County, these frugal borrowers are beginning to refinance their homes, hoping to trim their monthly payments.
Karl Voss, senior loan officer at Texas Mortgage, said unlike the subprime borrowers who qualified for home loans with poor credit, little down payment and sometimes spotty employment history, most of the recent refinance applicants carry “A paper,” which means they pose a low default risk.
“They’re the best borrowers you have,” Voss said. “All the people with A credit are getting good rates.”
Coming on the heels of a disastrous year for the nation’s home mortgage industry in which the nation’s largest mortgage lender, Countrywide, teeters on the verge of bankruptcy, Voss said the surge in refinancing is welcome news.
“After a six-month downturn, we had a big pickup,” Voss said. “Rates are really low, and we’re seeing an unusually high increase in applications, especially VA and FHA.”
Voss said a homeowner with a 7.25 percent interest rate on a 30-year fixed loan with a $150,000 balance could save about $200 per month by refinancing at 5 percent. (Two variables however, taxes and insurance, are beyond the mortgage company’s control and can affect payments.)
The Mortgage Bankers Association released Wednesday a nationwide survey that stated the refinance portion of applications climbed to 73 percent, up from 66 percent the previous week.
The MBA said the average interest rate for a 30-year fixed rate hovered around 5.60 percent, but 15-year fixed was even lower - about 5 percent.
Wednesday afternoon, the Federal Reserve Bank cut the prime interest rate another half percent, bringing the total cut within the last two weeks to 1¼ percent. Mortgage professionals say the connection between the Fed’s rate cuts and home mortgage rates are often misunderstood.
Caren Hildinger, Temple branch manager for Castle & Cook Mortgage, said some customers who purchased a loan through her company are calling back, asking about a new loan with a lower interest rate. She pointed out three important reasons to refinance.
n Get a shorter term. For example, dump that 30-year note for a 20- or 15-year mortgage. Depending on the interest rate, the payment may not increase, or rise only slightly.
n Ditch an adjustable rate mortgage - ARM - which is about to increase. Hildinger said some borrowers start with a “teaser rate” that goes up. She suggests a fixed rate with lower payment instead.
n Simply lower your monthly payment.
Refinancing also has a benefit that all borrowers love - they get to skip a payment.
Before picking up the phone, refinancing candidates need to do their homework. Hildinger urges borrowers to have the following information on hand when they call: date loan originated, current interest rate; monthly payment; type of loan (probably VA, FHA or conventional), and home value. To find out what your home is worth it is better to check with homes sales in your neighborhood than rely on the county’s appraisal.
Just as there is no free lunch, refinancing comes with a price. Depending on several factors, it can cost $2,000 to $3,000. Hildinger said there are three typical ways to pay these fees, called closing costs.
n Add to the loan balance.
n Bring a check to the closing table.
n Premium pricing - borrower doesn’t get as low a rate, but the lender will absorb closing cost. The borrower’s interest rate could be around one quarter percent higher, but you don’t have to pay closing costs up front.
“This will help home equity lines of credit, as well as adjustable rate mortgages. However, it will not have a direct impact on fixed mortgage rates. In fact, after each of the last four fed cuts, home loan rates actually moved higher,” said Barry Habib with the Mortgage Market Guide.
