HOME MORTGAGES: Refinancing on the rise as interest rates fall

By Don Shilling

Mortgage refinancing applications have doubled.

Area homeowners are flooding into local banks to refinance their mortgages at today’s low interest rates.

Rates that have dipped under 4.5 percent allow homeowners to cut their mortgage payments or pay their loans off sooner.

In some cases, the savings is $100 to $300 a month, said Michael Garmone, vice president of residential mortgage lending at Home Savings and Loan Co.

“That gets a lot of people’s attention,” he said.

Bankers say that applications for refinancings since Thanksgiving have more than doubled their normal rate.

The rule of thumb used to be that a homeowner should consider refinancing if the new interest rate was 1 percentage point lower than the current one.

Bankers today encourage people to use a more detailed analysis of their situation when deciding whether to refinance.

Factors to be considered include the amount of savings, the cost of writing a new loan and the length of time the home- owner intends to stay in the home.

For example, a homeowner might save $100 a month with a new loan but would have to pay $2,000 in closing costs to cover the appraisal, title work and other fees, Garmone said.

In that case, a homeowner who plans to stay in a home for more than 20 months should refinance, he said.

Bankers said most of the people coming in for refinancing have fixed-rate loans of more than 6 percent, and some have adjustable-rate mortgages that they want to convert to fixed rates.

Rates for 30-year, fixed-rate loans were about 5 percent last week, although Cortland Banks cut its rate to 4.875 percent Wednesday.

Homeowners needing only a 15-year loan can get an even better deal. Those rates were about 4.5 percent last week, although Cortland Banks was offering 4.375 percent.

Rates vary frequently, depending on what is happening on national mortgage markets.

Bruce Wenmoth, executive vice president of retail lending at First Place Bank, said rates took a big dip the week of Thanksgiving because the federal government indicated it would buy mortgage-backed securities.

In mid-December, rates fell some more when government agencies actually began buying the securities, but then the rates rebounded a bit.

Last week, however, mortgage rates began sliding again on the news of President-elect Barack Obama’s proposed economic stimulus package, Wenmoth said.

The temptation that rates may fall even lower has some people waiting rather than committing to a rate now, he said.

The danger is that rates could rise while a person is waiting for rates to drop another quarter of a percentage point, he said.

“People need to understand that these are historically low rates. Five percent for a 30-year rate is a great deal,” he said.

Bankers said the low rates have not spurred many people to buy.

People have been pre-approved for mortgages, but they aren’t committing to a purchase because they think home values will fall even lower, said Karen Clower, vice president at Cortland Banks.

Garmone said cutting interest rates isn’t enough to persuade someone to buy a home if they are concerned about their job or financial future.

Wenmoth said, however, that he thinks home purchases will begin rising. He said the appraisals that he has seen show that local home prices have started to stabilize, after a period where they had been declining.

Once potential buyers gain confidence that home prices have stopped falling, they will be more likely to buy, he said.



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