Go to the mobile version of this Web site.

Login | Contact Us | Site Map | Paid archives | Electronic edition | Subscription Questions | Extras

Lower rates spark refinancing mortgage boom

Millions in U.S. could see cheaper house payments

By John Rebchook, Rocky Mountain News (Contact)

Published December 18, 2008 at 12:05 a.m.

Text size  

Photo by ISTOCK

Related Links

More Real Estate

More stories »

Dave Anderson recently called his mortgage broker and said to keep in touch as rates inch downward.

The broker called when rates hit 5.25 percent, but Anderson said that wasn't low enough.

The broker called at 5 percent and 4.875 percent.

"When it gets down to 4.75 percent, call me back," he said.

Anderson, a retired engineer with a little more than $120,000 left on his mortgage for his Lakewood home that has been appraised for $350,000, got his wish late last week and exchanged his old rate of 6.375 percent for the new 30-year fixed loan of 4.75 percent.

"It saves me about $115 a month," Anderson said. "When you have been retired for 15 years, you try to save money wherever you can."

Anderson is one of tens of thousands of people in the Denver area, and millions nationwide, who are poised to benefit from the lowest mortgage rates seen in 55 years, as the government works to stimulate a sluggish economy.

The Fed, aiming to free up lending and jolt the economy back to life, cut the federal funds rate Tuesday from 1 percent to a target range of zero to 0.25 percent and pledged to keep funneling money into the market for mortgage investments.

It was the best news in months for anyone looking to lock in a 30-year, fixed-rate mortgage. But it was not expected to be a cure-all, and borrowers already in danger of foreclosure probably won't be able to take advantage.

"It's a call to action for homeowners looking to get out of adjustable-rate mortgages," said Greg McBride, senior financial analyst at Bankrate.com. "Unfortunately, it's not an equal-opportunity party."

An estimated 12 million Americans owe more on their home loans than their houses' current value, unemployment is still rising quickly and foreclosures are soaring.

On the flip side, many will benefit from the lower rates.

"We're probably going to do more business this month than in all of the last three months," said Nick Brown of the Spire Financial Group in Denver.

"Hopefully, people are going to start spending more money, and it is going to trickle down through the economy," Brown added.

The Federal Reserve plans to buy up mortgage debt and is considering buying long-term Treasury bonds that are closely tied to mortgage rates, likely to lead to even lower rates, analysts say.

"We're going to see just a massive refinancing boom," said Mark Zandi, chief economist at Moody's Economy.com, who estimates that up to 10 million U.S. borrowers, or about one in five Americans with a mortgage, could wind up refinancing.

Peter Lansing, president of Universal Lending, one of the largest locally owned mortgage banking companies, said so many people have called that it is difficult to keep up.

"It's overwhelming," he said.

Lansing estimated that 25 percent of the homeowners in the Denver area could benefit from refinancing, if rates fell below 5 percent. Wednesday morning, rates hit a low of 4.5 percent for a few minutes but ended the day around 5.25 percent, Denver mortgage bankers said.

The median price of a home in the Denver area was $206,000 in November, and a typical borrower probably has a loan amount of $185,000, Lansing said.

If they refinanced the loan into a 4.75 percent, 30-year, fixed-rate mortgage from one at 6.5 percent, it would drop the principal and interest payment to $965 from $1,169, a $204 savings.

"If people had another $200 or $300 each month that would be huge for the economy," Lansing said.

The biggest problem is that unless the homeowner has an FHA- insured loan, the house still needs to appraise at a high enough value to refinance. And borrowers need excellent credit scores to get the lowest rates.

Lansing estimated that at least 50 percent of the people calling have mortgages worth more than the home and can't take advantage of falling rates. If they already have an FHA-insured loan, they can do a streamline refinancing, which does not require a new appraisal, he said.

"If the Obama administration allowed us to refinance loans without appraisals, and rates stayed in the fours, we could help 25 percent of the homeowners," Lansing said. "The thing is, very few people got FHA loans three or four years ago."

Lou Barnes, principal of Boulder West Financial, said the lowest rates ever were in 1944, when the GI Bill kicked off with rates at 4 percent. The VA loans stayed at that level until 1953, he said, when they rose to 4.5 percent. VA loans used to be fixed but now float with the market.

"Theoretically, rates could get under 4.5 percent again, but when you say your prayers, pray that we don't see rates that low," Barnes said. "That would mean the economy is in very rocky shape."

However, he said there is a very good chance that the Denver-area housing market will rebound faster than most of the nation, while rates will remain super low because of the national housing depression.

"That means that we will benefit from low rates at a time when our housing prices are rising and our economy is improving," Barnes said. "The economy has to have legs before people start buying more homes."

But Jim Smith, owner of Golden Real Estate, said that the west side of town, said many homes in Golden already are experiencing a small amount of appreciation, and low rates will only fuel more buying.

“We are not like Commerce City, Brighton, Green Valley Ranch or Aurora,” Smith said. “And were going to see more jobs in Jefferson County under Obama, because this is the center of renewable and alternative energy research. I expect business to pickup dramatically. These rates are just awesome.”

The Associated Press contributed to this report.

In Colorado

Loan Type Wednesday's rates

30-year fixed 5.17 percent

15-year fixed 4.90 percent

5/1 ARM 5.19 percent

30-year fixed jumbo 7.17 percent

5/1 ARM jumbo 5.55 percent

Refinancing tips

* Get pre-qualified first. If you don't, you're wasting your time and the time of your loan officer.

* One rule of thumb is that the new rate must be at least a point lower than what you are currently paying. So if you're paying 7.5 percent, make sure you get a rate of 6.5 percent or lower.

* Start with your current lender. It doesn't want to lose you as a customer and typically will make it a hassle-free experience. But it never hurts to comparison shop.

* Make sure you know all of the costs associated with refinancing. That can include appraisals, title searches and documentation fees. If it costs you $3,000 and you save $300 a month, it will take you 10 months to recoup your costs.

* Most lenders suggest that you get the lowest rate possible without paying any points. A point equals 1 percent of the loan amount.

* Be cognizant that there are two factors at work - time and money. You might save money each month, but if you have paid five years off on a 30-year loan, and you start over again, your savings could be an illusion because of added payments over the life of the loan. On the other hand, your game plan may be to sell the house long before the loan is paid off. As an alternative, you could ask the lender if he can amortize the new loan over 25 years instead of 30 years.

Comments

  • December 18, 2008

    4:14 p.m.

    Suggest removal

    underthebusinvestments writes:

    I knew Uncle Sugar would provide!

  • December 18, 2008

    7:30 p.m.

    Suggest removal

    conservative111 writes:

    Hey Mr. Smith, owner of Golden Real Estate, did you forget that BRIGHTON is getting 1300 hundred new jobs from the wind turbine manufacturer Vespas? I hate those Golden/west side snobs who diss on others who they THINK are living in the ghettos! Did he read the story on Adams county being one of the most desirable counties to live in a couple of weeks ago because of low housing costs and PLENTY of jobs? Sounds like he is scared his business is going down and has to bad mouth others to get his business going again. Oh boy, Obama is adding a few research jobs, whoopee!!