Focus on Real Estate


 

Homeowners rush to refinance amid historic low rates

 

By John Harrington
Independent Record

HELENA — Despite the sour news from the national housing sector — where year-over-year sales dropped 25 percent from July of 2009 to July this year — mortgage departments at banks and other lenders have never been busier.
That’s because interest rates on mortgages, which have been historically low for more than a year, have slipped even lower in recent weeks. One local bank this week was offering a 30-year fixed-rate mortgage at 4.125 percent, with a 15-year fixed rate available at a miniscule 3.625 percent.
As a result, even though Americans appear gun shy when it comes to buying a new house, people are still lining up en masse to refinance their existing mortgages.
According to the Mortgage Brokers Association, the week ending Aug. 20 was the busiest for refinancing since May of last year. The MBA has conducted its weekly survey since 1990, and current interest rates are the lowest on record.
At Valley Bank of Helena, president Andy O’Neill said that even with home sales being sluggish, the bank’s real esrate lenders are slammed.
“We are as busy as we have ever been in the mortgage department, but 60 percent of it is refinances, and only 40 percent is purchases,” O’Neill said.
And that ratio appears modest by national standards. According to the Mortgage Brokers Assocation, 82 percent of all mortgage activity last week involved refinance applications.
In more typical times, O’Neill said, three-quarters of Valley Bank’s mortgage activity would be home purchases, and even though the bank makes money on refinancing too, officials would prefer to see more home purchases in the mix.
“We would like to see more purchases because that has a tendency to stimulate the real estate economy,” O’Neill said.
At Mountain West Bank, president Rick Hart said rates have been in such a steady decline that the bank is in some cases helping people with their second refinance.
“Right now we’re seeing people who got the 4.5-percent 15-year money are coming back for the 3.75-percent 15-year money,” Hart said.
Hart agreed with O’Neill that a new home purchase does more for the economy than a refinance, “but even if we can save a customer a few hundred dollars a month on a refinance, they’re going to spend that money in the community somewhere,” he said.
First Interstate Bank writes mortgages across Montana, and president and CEO Lyle Knight of the Billings-based bank said that the housing bubble didn’t grow as large here as it did elsewhere. As a result, more Montanans can look into refinancing now.
“One of the reasons I think Montana hasn’t felt the full impact that the rest of the nation felt is that Montanans still have equity in their homes,” Knight said. “I talk to my colleagues in Arizona and Nevada, they don’t even have real estate origination staff. Meanwhile, we’re adding people.”
Knight said 63 percent of First Interstate’s mortgage business right now is refinancing, which is historically high.
The average rate being paid on a mortgage at the beginning of the year was just a hair under 6 percent, according to the Bureau of Economic Analysis.
With the current rate on a 30-year mortgage sitting just over 4 percent, many homeowners could benefit from refinancing. Some can refinance into a new 30-year mortgage and have a lower monthly payment, while others might refinance to a 15-year mortgage and have their house paid off sooner.
But John Steinhoff, a CPA with Junkermier, Clark, Campanella, Stevens, cautioned that there’s more to consider than simply locking in a lower interest rate.
“I always encourage people to look at the points associated with a refinance,” Steinhoff said. “If they’re refinancing today at a lower rate but they’re paying those points, how long would they have to live in the house to recoup those points that they’re paying?”
In other words, people who expect to move within a few years might not recoup the closing costs of the refinance, even if they do manage to lower their monthly payments.
First Interstate’s Knight said that with rates as low as they’ve been since World War II, it’s hard to know where the bottom might be, but he anticipates another surge in refinances as soon as rates show signs of ticking upward again.
The psychology, he said, is that people sit on the sidelines as rates continue to drop, then make a move at the first sign of an uptick, thinking the bottom has been reached.
“They want to get the best deal that they can,” he said. “So they will sit out and let the price drift down, we’ll hit the bottom without much activity, but as soon as they start to go up, there’s an onslaught.”
 


Last Updated
Nov 21, 2017
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