By Steve Campbell
RISMEDIA, April 13, 2009-(MCT)-With mortgage rates dancing around a 65-year-low of 4.75%, homeowners are checking their credit scores and lenders are being deluged with refinancing applications.
“I’ve been through about four refinance crazes in my career, and this is the most significant I’ve seen,” said Marshall Boyd, co-president of Southwest Bank Mortgage and a founding and managing partner of Williams Trew Real Estate Services.
“The No. 1 reason is that rates are lower this time,” Boyd said. “I never dreamed we would be refinancing people with loans in the 5′s to loans in the 4′s.”
Linda and Jeff Hochster watched rates for several months before refinancing their home in Fort Worth’s Mira Vista neighborhood. “We started doing research and reaching out to brokers. We just kept watching as the rate was falling over the last 45 days,” said Linda Hochster, a retired public relations manager for Southwest Airlines.
Rates took another step down in March when the Federal Reserve committed to buy up to $1.2 trillion in mortgage-backed securities and $300 billion in government debt.
“It was like the perfect storm,” Linda Hochster said. “Everything was lining up. We put the deal together in two days.” They refinanced their 15-year, 5.5% loan to 4.38% on a 10-year note. Their costs were about $3,400. “They rolled everything in (to the new loan), and it cost us basically nothing out of pocket,” Linda Hochster said.
Jim Gaines, research economist at the Real Estate Center at Texas A&M University, calls it an unusual opportunity.
“Most of us are old enough to remember 8 and 9 percent rates. It limited your housing choices. That’s why people are jumping on this,” Gaines said.
But the low rates aren’t available to everyone. You need a strong credit rating, a low debt ratio and at least 20% equity in your home to qualify.
“Things are different now,” said Troy A. Fore Jr. of Fort Worth-based Intrust Mortgage Inc. “At one time, just about anybody with a pulse could get a loan. These rates are for people with strong credit scores and fully documented incomes and home equity.”
Fore said applicants must have a credit score of 620 or higher, and are likely to pay higher costs if their score is below 740. “There is more discussion about credit and credit quality than we’ve had in many, many years,” he said.
There are unavoidable costs to refinancing, including loan origination fees, title fees and lender fees. In general, Fore and Motley agreed, a borrower can expect to pay between 2.5% and 3% of the loan value in refinancing fees.
Robin Smith, vice president of Cornerstone Mortgage Co. in Colleyville, Texas, says a major factor to consider is how long you plan to stay in your home. “We are telling people that the general rule to recoup costs in refinancing is 18 to 24 months. We’ve lived by that forever,” Smith said.
Generally, you need to lower your rate at least a full percentage point to make refinancing pay off, Smith said
Fore also believes that the market is now testing the bottom. “Only more really bad news will lower the rate. And I don’t think we want that,” he said. “Good news will turn the rates back pretty quick.”
Gaines predicts that rates will stay low through early 2010. “This is a guess,” he said. “But in five years, this might be viewed as the most opportune time to refinance a house in our lifetime.”
Should you refinance?
-Consider it if your interest rate is above 6%.
-Expect to pay 2.5% to 3% of your loan total for closing costs.
-As a rule, you should recoup the cost of a loan in 18 to 24 months.
-To get a low rate, lenders will expect a strong credit report and at least 20% home equity.
© 2009, Fort Worth Star-Telegram.
Distributed by McClatchy-Tribune Information Services.
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