Homeowners are rushing to refinance mortgages as concern mounts that some of the lowest interest rates in more than a generation may begin to rise next year.
The latest wave of refinancings also includes those skittish about buying a home in today's economy but who want to take advantage of ultra-low mortgage rates. The payoff could be a reduction in monthly house payments or shortening the length of of loans.
"I'm still crunching the numbers right now to see what I want to do," said Chris Hanson, a local real estate agent, who knows a lot of homeowners who refinanced earlier this year thinking rates would rise.
Hanson said he qualified for a 3.5-percent interest rate on a 15-year note. His payment would go up less than $100 per month if he were to refinance his existing 30-year mortgage.
While the overall mortgage market has shrunk as the industry tightened its lending standards and demand for home buying tapered off, refinancing has been taking a larger piece of the pie.
"Our volumes are abnormally high," said David Zugheri of Envoy Mortgage, who estimates that refinancing, which typically makes up 30 percent of mortgage originations industrywide, now amounts to about 70 percent.
At JPMorgan Chase, refinancings nationwide have increased dramatically as a percentage of all new mortgages from a year ago, and the refinancing dollar volume has risen even more dramatically, said spokesman Greg Hassell. The bank has added staff to process applications more quickly, he said.
'Pretty good deal'
Bank of America, one of the top lenders in Texas, also has seen its refinancing business soar.
In the third quarter, the bank produced $72 billion in mortgages, of which 64 percent was refinancing.
"That's a relatively high percentage," said spokesman Terry Francisco. "It shows you how big refinancing has become for us and the industry, too."
The bank does not release regional figures.
Nationally, mortgage rates averaged 4.24 percent for a 30-year, fixed-rate loan and 3.63 for a 15-year loan, according to the latest weekly survey from Freddie Mac.
"When interest rates on 15-year loans are less than 4 percent, how can you deny that? The person on the other end is not even keeping up with standard inflation," Zugheri said. "That's a pretty good deal."
Payments about same
Tomball homeowner Gloria Putman started shopping for a new mortgage after seeing a neighbor do it.
She was able to trade in her two mortgages for one 15-year loan. Her house payment remained about the same because her interest rates went from 6.25 and 7.25 percent to 3.875 percent.
Putman also knocked seven years off the term of her loan, which she plans to pay off early to coincide with her retirement from the plant sales business.
"My main motivation is because of my age," she said. "I'll be 60 in February, and I feel like I have to have a house paid for."
Putman, who had a strong credit score, said the refinancing process was relatively easy and that she did most of it online.
Her cost: More than $1,500.
The amount a homeowner can expect to pay to refinance depends on factors such as credit score and the amount of the mortgage relative to the home's value.
Generally, a borrower is going to pay an origination fee and a couple of thousand dollars in closing costs and title fees, said David Jackson, branch manager at Flagstone Lending Group in Houston, which handled Putman's loan.
To be sure, the mortgage market doesn't work like it used to.
Qualifying tricky
Qualifying under today's tighter lending rules can be tricky for those without good credit or who can't prove their income and assets.
And borrowers who have seen the value of their homes decline or have little equity because they bought with 100 percent financing often will have trouble refinancing.
"Even though lots of people want to refinance, they're having problems," Jackson said.
Still, fewer homeowners are being denied finance requests in Texas because home values held up better here than in places like Florida, California and Michigan.
While area home sales remain weak compared to last year's levels, some local mortgage brokers and bankers are starting to see more purchase business in addition to more refinancing.
"The low rates right now are obviously driving people to come in whether it's a purchase or refinance," said Jackson, whose firm saw about a 30 percent increase in purchase applications from August to September.
But mortgage rates may be as low as they're going to go.
Last week, the Mortgage Bankers Association said the refinance business will decline as rates gradually rise.
Rates likely to go up
Fixed mortgage rates are expected to average about 4.4 percent in the fourth quarter of this year and then increase to 5.1 percent by the end of 2011 and move toward 5.7 percent in 2012, the group said. Overall mortgage originations are expected to fall from an estimated $1.4 trillion in 2010 to slightly under $1 trillion in 2011.
It's not yet clear whether Tuesday's announcement by the Federal Reserve to buy $600 billion in government securities will significantly impact mortgage rates, though in theory the move will drive down bond yields and, perhaps, mortgage rates along with them.
Higher rates combined with today's increased volumes of refinanced loans could dampen future growth in the housing market.
If rates were to go up, a homeowner that refinanced with a 4 percent interest rate might think twice about selling his house and buying another one that may carry a 5 or 6 percent interest rate, Zugheri said.
"We could be robbing from future growth," he said.
nancy.sarnoff@chron.com
(Credit: Google)
Sent from my HTC on the Now Network from Sprint!
Sent from my HTC on the Now Network from Sprint!