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For all those folks who didn't refinance their home mortgages last fall -- and for some who did -- it may be time to arrange a new loan.
"I've been in the business 24 years, and I can't remember rates ever being this low," said Robert H. Stewart, regional manager of U.S. Bank Home Mortgage, the region's largest home mortgage lender. "The volume we're seeing over the last six weeks is heavier than any period last year."
It's a bright spot in an otherwise dreary economy. All those refinancings are pumping money back into consumers' hands. Some people are saving it, some are paying down debts and others are spending. Freddie Mac, a mortgage company, reported Thursday that the nation's 30-year, fixed-rate mortgages averaged 6.22 percent the week ending Aug. 8 -- breaking the previous week's 32-year low.
The average interest rate for 15-year fixed-rate mortgages -- 5.63 percent -- was the lowest since Freddie Mac began tracking the loans in 1991.
Since 30 years is typically the longest mortgage payback period, "nobody holds a mortgage (interest rate) lower than you could get today," said David Burson, chief economist for Fannie Mae, the big mortgage-funding company that buys mortgages from banks or brokers.
"Everybody won't refinance," Burson said. "But many people will."
Fannie Mae is predicting mortgages worth .2 trillion will be refinanced this year, topping last year's record, .1 trillion.
The low rates and accompanying advertising blitz finally convinced Charles Campbell of Godfrey to look into refinancing. He had paid 9.5 percent for 14 years on a 30-year mortgage.
"I found out it didn't cost that much (to refinance). I thought we mi ght not be living here long enough to get our savings out of it," said Campbell, who closed on his new mortgage Friday at Chicago Title Co. "We're going to save a lot of money with the difference in the interest rate."
Like many people refinancing this year, Campbell had seen ads about low rates. He asked at his bank, U.S. Bank. An employee there referred him to its mortgage arm, U.S. Bank Mortgage.
"The process went real easy," Campbell said. "We just answered a few questions, and a few days later, he called and said I had it."
Technology has reduced both the time and costs of refinancing, lenders say.
"Two to five years ago, processing took a couple of weeks," said Bill Malek, president of Gateway Capital Mortgage Corp. "Now the deal is approve d in-house via computer in six and a half minutes."
Technology has streamlined credit reports, employment verification and underwriting. So much more information is available through computer connections with large databases that loan officers may need only a current pay stub to approve a customer, said Stewart of U.S. Bank Mortgage.
"Not only is it faster, it's less expensive," said Burson of Fannie Mae. "We don't need as many people transcribing numbers from one ledger to another. The cost in dollars and time has gone down."
Appraisals have been streamlined as well, Stewart said. With recent sales prices available on computer databases, lenders are using drive-by appraisals on many houses in neighborhoods with good comparable market prices.
"They don't have to inspect the home. They just need to know, is it still there at this address," Stewart said. "It saves the consumer money, too."
U.S. Bank Mortgage wrote million worth of refinanced mortgages in the region in July, Stewart said, nearly two-thirds of the regional division's monthly total. This month, about three of every four mortgages the company writes are refinance deals, and Stewart expects refinancings will "easily surpass million."
Lower payments
How much can homeowners save by refinancing? It depends on what they paid before.
For example, a 30-year fixed-rate loan of 0,000 with an interest rate of 8 percent might have a monthly payment - principal and interest - of 4.
If the homeowner refinances for another fixed-rate mortgage of the same term at 6.5 percent, the monthly payment drops to 2.
That's with no points. "St. Louis is a zero-point market," Stewart said. One point equals 1 percent of the loan, and customers typically pay it up front to get a lower interest rate. Freddie Mac's most recent weekly survey says lenders in the region that includes Missouri charged an average of 0.6 points. In the region including Illinois lenders charged an average 0.3 points.
"In other states, you have an origination fee of 1 percent of the loan, or discount points to lower the interest rate," Stewart said. "But customers in this market are not willing to pay points." So most lenders don't emphasize the option of a lower rate with points.
Refinancers have several choices of how to take their savings. They can:
* Lower the monthly payment, as in the example, and spend or save the difference.
* Cash out, which keeps the payment about the same, increases the loan amount and converts some equity into cash for other purposes, such as a remodeling project or a college fund.
* Shorten the payment period and save on total interest costs, as more money each month is applied to paying down the principal. The shorter the period, the higher the monthly payment, but it can be particularly sensible for someone like Campbell, who has already paid the interest-heavy part of a longer mortgage and will still have a lower monthly payment than he had with a 9.5 percent loan.
* Consolidate home-equity loans into a primary mortgage and save on the typically higher interest rate of the equity loan, too.
Stewart estimates that about 60 percent of U.S. Bank Mortgage's refinance customers are opting for a lower rate and lower monthly payments.
Burson, of Fannie Mae, said about one in 10 refinancers nationwide takes a cashout. Of the .1 trillion refinancings last year, "we estimate that people took about 0 billion in equity with cashout refunds," he said. Of that, "they spent about billion."
Nancy Georgen, a financial planner with Moneta Group, advised that borrowers treat their "found" money carefully. They can reduce debt, increase savings, invest it or even buy a new car.
Borrowers who have paid only a few years on a mortgage might want to go with a longer payment period and a smaller monthly payment, just to keep their funds liquid. "You don't want all your investments tied up in your house," she said.
But if they choose the longer term, they should try to funnel some extra payments into the principal whenever they can, Georgen said.
She recommended paying down debts and increasing savings first. If a borrower already has a good retirement savings account, has or doesn't need a college fund, has a diverse portfolio of investments and wants to spend the refinance bonus on a major purchase, that can be a better plan than using a credit card or other high-interest loan.
"It's really a matter of whether you are making an investment or a purchase," Georgen said. "You need to be aware and do it consciously."
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