Lower interest rates spur mortgage refinancing

Sunday, February 1, 2009 | 6:27 p.m. CST; updated 9:28 p.m. CST, Sunday, February 1, 2009

 COLUMBIA — Donna Keller and her husband Keith have lived in their Hallsville home for 14 years.

Donna had been monitoring mortgage interest rates, and when they hit 5.75 percent in December, she knew it was time to call her loan officer.

A week later the lender called and said mortgage rates had dropped to 5.25 percent.

The Kellers exchanged their old rate of 7 percent for the 5.25 percent rate. Donna said the couple is now saving more than $300 a month.

“It’s giving us a chance to touch up on other expenses,” she said.

She plans to use the money to pay off her higher interest credit cards and put a bit toward the principle on the mortgage. Like millions of Americans, the Kellers are in a position to save money by home refinancing.

"In the last six weeks, we've seen a refinance boom driven by the lowest interest rates seen in 30 years," said John Mechem, spokesman for the Mortgage Bankers Association. MBA is a lobby group representing the real estate finance industry headquartered in Washington D.C.

The declining interest rates are resulting in more business for bankers and other lenders.

Chris Sanders, a loan officer at Allied Mortgage Group Inc., said he has experienced an 80 percent increase in loan applications from December to January.

“It almost came out of nowhere and it's hitting people unprepared,”Sanders said. He is in the process of hiring new assistants to help handle the rush.

Maureen Dalton, president of Monarch Title Company, said title applications have more than doubled.

Steve Burch, regional president for U.S. Bank, has noticed the increase and welcomes the new business.

“With rates as attractive as they are now, people are looking to capitalize,” he said.

Interest rate cuts and federal economic stimulus packages have contributed to the refinancing rush.

Sue Ann Schaefer, real estate lending manager at First National Bank and Trusts in Columbia, said rates dropped as low as 4.375 percent on 30-year fixed loans in January.

The wave of refinancing began after the Federal Reserve announced in November that it would buy up to $500 billion in mortgage-backed securities that have been backed by Fannie Mae, Freddie Mac and Ginnie Mae. In early December, the Fed cut the federal funds rates — the interest rates on loans to banks that need more cash on hand to meet their reserve requirements. 

The Mortgage Bankers Association compiles a weekly mortgage application survey. One week after the Fed made its announcement, the survey noted a 200 percent increase in refinance applications.

Carolyn Kemp, spokeswoman for the MBA, said the Refinance Index — which acts as a gauge of mortgage refinancing on a weekly basis — for the week ending Jan. 9 was 7,414.1, compared to 5,904.5 the previous week. The Refinance Index was at its highest level since the week ending June 27, 2003, when it was 8,599.1.

An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. The 30-year fixed mortgage rate hit its lowest level since the survey began in 1990 during the week ending Jan. 9 when the average rate was 4.89 percent.

Sanders was able to help a client refinance his 7.25 percent 30-year fixed loan to 5 percent. Prior to the refinance, the client was paying $1,713 a month on 100 percent financing when he purchased his home. Once he refinanced, he was able to save $401 a month and save more than $125,000 off long-term interest.

Sanders says that this client is planning to apply the savings toward the principle of the loan. If this client is faithful to the plan then he will shorten his mortgage by 14 years.

“Cases like this are typical right now” Sanders said. “If you are sitting on a rate of 6 or 7 percent, these lower rates could ease the budget.”

The MBA expects rates will remain at or near historic lows through 2009.

Sanders reports that more than 90 percent of those applying for loans are getting approved, but regulations are stricter after a period of credit abuse.

Schaefer said the trend of most lenders is to refinance loans using risk-based pricing. Risk-based pricing aims to mitigate the perceived risk of lending by matching the loan price and the expected loan risk. Lenders carefully evaluate criteria such as payment income ratio, debt income ratio, payment history and loan-to-value when issuing and refinancing loans.

Despite the savings some have been able to achieve when refinancing, real estate professionals are urging homeowners to carefully examine the option. Homeowners should evaluate their situation, calculate the dollar amount of savings, how long it will take to recoup the cost of refinancing and decide how long they plan to be in their home.

While Bob Lawler, owner of RH Lawler Appraisals, is happy to see his business increase, he warns consumers to proceed with caution.

“Don’t take national or local trends and paint with a broad stroke,” Lawler said. “Your house is its own market.”

“It needs to make sense,” Schaefer said firmly.The decision to refinance has been the right decision for the Kellers.

“It gives us peace of mind,” Keller said.

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John Jakobs February 1, 2009 | 9:33 p.m.

These people have been bamboozled! For 14 years they have been making payments on a mortgage. The mortgage had to be at least $300,000to save over $300.00 per month with the change in interest.

They may be paying $300 per month less in monthly payments but their cost is far more! The 1st payment on the original mortgage @300k would have been $1945.91, 245.91 going towards principal. That is 1 of every 8 dollars going to principal with the rest going to interest. on payment #168 fourteen years later they would have 1 of every 3 dollars going to principal.

Before refinancing, they would have paid $335,312.88 with $69,847.61 going towards principal on a $300,000 mortgage. They have already paid over $335,000 dollars on a $300,000 mortgage and they still owe over $230,000! Now after they spend an average of 3% to refinance they are starting the 8 to 1 ratio all over again! Starting from payment one! This is a GOOD thing? From the title of the article you would think so. That is the type of media marketing that has led Americans to where they are now. Accompanied by a population that seemingly takes everything they read and see on television as gospel has brought us to the crossroads we are at today.

As for the Bailout, forget about it! There will be no bailout for the people. If the government manages to free up credit for the American consumer, who is going to benefit? You just read who! The Banks, The Title and Insurance Companies, all disguised as a bailout for the American people! When in fact all this will accomplish is to reload the debt on the shoulders of American Homeowners and credit consumers.

We need to change this type of thinking! Albert Einstein said you can't solve a problem with the same thinking that caused it! If you want to see a different way of thinking and managing this type of financial scenario? Come visit my blog @ As a Mortgage Loan Officer I am committed to educating people to save as much of their money as mathematically possible! I have illustratedthe true cost here, the true savings are illustrated on my blog.

Let's face it our 2 largest expenses as an American citizen are Taxes and Mortgages! I have a tool, a system that I am using to save over $300,000 on my mortgage and gives me over 100 tax deductions to help reduce my tax liability. I write about these issues every week, this type of education and thinking is there for the taking! Come take control for yourself not only for you, your children, but your Country too! Let's get America healthy again from the people up to the top! Not the top down to the people! The people on top don't really care or they would be educating everyone with the truth.

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