Interest rates continue to drop, but evidently there hasn’t been enough change in rates yet to send people in droves to the bank seeking to save some money by refinancing home mortgages.
“The 30-year and 15-year rates are down somewhat, but I think they haven’t totally bottomed out,” said Mississippi Banking Commissioner John Allison. “People could be holding off on refinancing because the Fed rates are expected to go lower. But just by the fact the Fed does a short-term rate cut doesn’t automatically equate to a lower mortgage rate. Mortgage rates are triggered by a longer-term federal instrument. Ultimately, mortgage rates are predicated on a 10-year Treasury product. If the discount rate changes today, the ten-year rate doesn’t necessarily change. It takes time to trickle down into the long-term rates. A discount rate reduction ultimately affects the long-term rates.”
The rule of thumb in banking is that to make it cost effective to refinance a mortgage-depending on the bank fees that must paid to refinance-usually there needs to be a rate in the marketplace that is 1.5% to 2% lower than the current mortgage rate.
“It might not be efficient to do it yet,” Allison said. “Depending on what type of loan you have, there is still some benefit to refinancing. Especially if have an ARM, it would certainly behoove you to go into a fixed rate loan. You have to look at closing fees and re-filing fees. The rate you are refinancing to should equate to some savings to recoup what you cost. Those fees will go back into your loan.”
Renasant Bank reports a definite increase in interest from homeowners and homebuyers in the refinancing arena.
Dawn Robbins, mortgage production manager Renasant Bank for Mississippi, said when considering refinance, a borrower needs to ask, “Can I lower my interest rate and my monthly payment with only a minimum increase in my principal, and does it make sense for me to pull cash from the equity in my home for debt consolidation purposes?”
“Certainly I would suggest that anyone on an ARM (adjustable rate mortgage) program needs to run, not walk, to their lender and refinance,” Robbins said. “It is also a very good time to combine that first and second mortgage, if you have these.”
Robbins said with all of today’s technology and financial television shows, the mortgage consumer is more educated than ever. This, along with the publicity about refinancing and Fed rate reductions in the media, has made the public very aware of their mortgage options. But are some people waiting to consider refinancing in anticipation of rates going even lower?
“After the latest big moves by the Fed it is hard to believe, but yes, there are still some buyers in the market holding out for another Fed rate reduction in anticipation that it could possibly send mortgage rates even lower,” Robbins said.
Wait and see?
Waiting for lower rates can backfire, said Paula Warren, first vice president, mortgage sales production manager, for Trustmark Bank.
“When mortgage rates move upward, it can happen very quickly, with several rate increases in the same day,” Warren said. “Then it is too late to ‘lock in’ on the previously quoted rate. A good loan officer will evaluate your scenario and help you decide if the cost to refinance is a wise move for you.”
Trustmark has seen customer interest in refinancing increase dramatically in recent weeks, as mortgage rates have dropped.
“Refinance inquiries represents approximately 70% of incoming calls and many of those customers do benefit to some extent by refinancing,” Warren said. “Closing costs are typically about $1,500 and can often be financed into the new loan. Reducing the rate by 1% on a $250,000 30-year mortgage lowers the payment by more than $150.”
Warren said if a homeowner will be in their present home at least two more years, it is wise to investigate all refinance options. For instance, a 15-year loan rate is lower, but of course the payment is higher due to the shorter term. However, the 15-year loan results in much more equity, even in just a few years.
Robert “Robbie” Barnes, chief lending officer, PriorityOne Bank, Magee, said while they have had more calls from people checking rates, they haven’t seen a lot of refinancing taking place yet.
“I do anticipate if the economy continues to slow and we continue to see rates come down, we will see some refinancing taking place especially borrowers in the market with a balloon type loan set to reset in some point in time,” Barnes said. “Rates aren’t at historical lows. A couple years ago they were about 4%. Now they average 5.25 for 15 years and 5.75 for 30 years for conventional home mortgages. If they get below the 5% range, I think you will see the refinancings pick up considerably.”
Barnes said mortgage rates, contrary to what the mainstream media would have you believe, haven’t changed that much. One difference is that the stated income mortgage-where banks would just take someone’s word without requiring proof of their income—has gone away. Income must be verified now. And the market for jumbo loans, $417,000 and up, is pretty much dead.
‘The market is good’
“For anything other than those two types of loans, the market is good,” Barnes said. “There are plenty of lenders out there making those loans. Banks in Mississippi in particular have really not experienced the problems that seem to have affected a lot of the other areas of the country. The housing market has not taken a decline to the extent the national markets have. There are a couple of spots, like Madison and DeSoto counties, where they have been some slight declines in real estate values and a little slowdown in market. But, by and large, the state has not been affected by what has happened in the real estate market at the national level.”
If refinancing activities pick up, it is good for banks and others involved such as appraisers and attorneys who do title work.
Lower interest rates may help banks, said Dr. Ken Cyree, interim dean of the School of Business at the University of Mississippi.
At the bottom?
“You’ve seen it in the marketplace,” Cyree said. “In the stock market, for example, most of the financial stocks have done better. I think we are starting to see the end of housing problems. I’m not saying it will be over next week, but we are at a spot where people think they can see the end of the tunnel. I don’t think we are at the bottom yet, but I feel we are awfully close.”
His advice to potential homebuyers is to do the same thing you would do in any market: look for good deals and take those good deals.
“Don’t worry a lot about what they say about the economy on television,” he said. “If you feel comfortable in a home purchase, now versus six months isn’t going to matter that much. Over the next six month, the housing market is difficult to predict. I don’t think there is a whole lot more downside in the market. If you find a great deal, go for it. But I would be very price conscious.”
Contact MBJ contributing writer Becky Gillette at firstname.lastname@example.org.