Friday, January 02, 2009
By Mike Copeland
Tribune-Herald business editor
With mortgage rates hitting record lows, Mary Jo Teakell is seeing a growing backlog of refinance applications.
“We’re quite busy right now,” said Teakell, senior vice president at Extraco Banks, commenting on the surge in people wanting to get a lower interest rate on their homes.
Interest rates generally are hovering around 5 percent — a little lower on some days, a little higher on others.
“I can remember times when we thought 7 or 8 percent was a low rate,” said Rodney Kroll, president of Texas First State Bank. “We have the lowest interest rates now since 1970.”
Freddie Mac reported this week that average rates on 30-year fixed mortgages dropped to 5.1 percent, down from the previous record of 5.14 percent set last week.
It was the ninth straight weekly drop.
The average rate on a 15-year, fixed-rate mortgage has dropped to 4.83 percent, the lowest point since March 2004.
Local lenders said interest rates have been falling since the government announced in October its $700 billion bailout package meant to stimulate the economy. The Federal Reserve pledged last month to buy mortgage-backed securities to bolster the sagging housing market.
Holden Thomas at Excellent Mortgage in Waco said he’s seen refinancing applications increase three or four times the typical volume the office experiences.
“What I’m hearing is that rates probably will remain pretty steady until the beginning of the new year, then they may go down a little bit more again,” Thomas said earlier this week.
He said most of those refinancing are knocking at least $100 off their monthly mortgage payments.
“If you can refinance and lower your rate by 2 points or more, that’s worthwhile,” said David Littlewood, president of the First National Bank of McGregor. He added that he has noticed an uptick in refinancing activity at his bank the past 15 to 30 days.
He said those wanting to refinance their homes can expect to pay 4.75 to 6.5 percent, depending on their credit rating and the underwriting criteria used by the lender.
Thomas, at Excellent Mortgage, said the tightening of credit nationwide does extend to the refinancing arena.
“Yes, it is tougher to refinance,” Thomas said. “In the old days of subprime lending, you didn’t really need good credit or much equity. These days, you need a good credit score and good equity. People with fair credit, 600 to 700, can still get loans. But for those in the 500 range, there are not loans for them anymore.”
But Mike Thompson, president and CEO of Extraco Banks, had a little different take on the difficulty of refinancing.
“Is it tougher to refinance than it used to be? It’s really not. If the basic credit elements are in place, you have good equity and a steady job, it’s no more difficult to refinance than it’s ever been,” he said.
Equity is the amount of money a buyer has paid on a home. For example, someone who has paid $25,000 toward a home valued at $100,000 has $25,000 in equity in that home.
Some mortgage companies require at least 10 percent equity to refinance.
Bill Nesbitt, chairman and CEO of Central National Bank, said the bank is seeing its share of refinancing, but he would not call it a rush.
“Rates are low, but rates have been low for a long time, since right after 9/11,” Nesbitt said, referring to the Fed’s decision to lower interest rates several times after the terrorist attacks of 2001. “A lot of folks who were going to refinance have already done it.”
Opinions vary on how much interest rates should drop before refinancing becomes beneficial to a homeowner.
“It’s worth considering, even if rates drop only 1 percent, though it makes more sense at 1.5 percent,” Extraco’s Thompson said. “Now is a great opportunity to lower house payments and use that money to retire credit card debt.”
Several bankers said adjustable rate mortgages have fallen out of favor because fixed-rate mortgages are now so low.
The Mortgage Bankers Association reports that mortgage applications are at the highest level in more than five years.
More than 80 percent of applications are coming from borrowers looking to refinance at more affordable rates, the trade group said.
But homeowners locally are doing more than refinancing.
“We’ve seen a 20 percent increase in home improvement loans, so we can tell people are choosing to stay in the home they’re in and fixing it up,” Extraco’s Teakell said.
Teakell said she’s also seeing a jump in home equity loans.
mcopeland@wacotrib.com
757-5736
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