Many homeowners flip for rate dip

Refinance inquiries double, but it's tougher to qualify

August 18, 2010 

DN refinance

(DEBBIE NODA/dnoda@modbee.com) - Loan consultant Kevin Hawes from Ability Mortgage in Ripon works with a client on a potential refinance of his home, August 17, 2010.

  • CHASING THE SAVINGS

    Northern San Joaquin Valley mortgage brokers and loan officers say interest in refinancing has jumped the past few weeks with rates at all-time lows. Here are some things to keep in mind:

    • Having equity is one of the biggest factors in refinancing
    • Even some homeowners who owe more than their homes are worth can take advantage of the rates because of special loan programs.
    • Those who qualify need to make sure that the math works out for them by carefully weighing loan costs and fees against savings on mortgage payments.
    • Refinancing over a shorter period at a lower rate can generate significant savings.

    WANT TO REFI?

    There are some automatic disqualifiers:

    • Unemployment
    • Late mortgage payment in past year
    • Not having at least a 600 credit score
    • Foreclosures or loan modifications
    • A significant decline in income

With mortgage rates at their lowest in decades, Central Valley mortgage lenders have seen a rush to refinance.

Last week, the average mortgage rate dropped for the seventh time in eight weeks to 4.44 percent for a fixed 30-year term, according to Freddie Mac. Fifteen-year mortgages averaged 3.92 percent.

For a homeowner, that refinancing could mean hundreds in savings each month and tens of thousands over the life of the loan.

Oakdale resident Craig Mixon bought his home 2½ years ago at 5.5 percent for a 30-year fixed mortgage. By refinancing to 4.75 percent over the same term, he saves $200 a month and $60,000 over the course of his mortgage.

"It's extra money in your pocket every month," said the 39-year-old. "It's an extra night out to dinner, an extra night out to the movies, if that's what you choose to use it for."

Mixon said he plans to save his monthly windfall instead of splurge.

With rates that low, local mortgage brokers and loan officers say interest in refinancing has doubled in the past few weeks. But, they said, only about one of every five borrowers who inquire actually qualify.

Then the question becomes, "Who does qualify and how can homeowners take advantage of record-low rates?"

"The phones were ringing quite a lot and rates are definitely low," said Kevin Hawes with Ability Mortgage in Ripon. "The hardest part is finding out whether they have value in their homes or not. That is the first step."

Having equity is one of the biggest factors to refinancing, although even some homeowners who are underwater (meaning they owe more than their homes are worth) can take advantage of the rates.

Fannie Mae and Freddie Mac have programs that allow for financing for more than the value of the home, up to 125 percent, although most lenders draw the line at 105 percent.

"If a person owes $200,000 and their appraisal comes in at $190,000, there is still hope," said John Nelson of Megastar Financial Corp., formerly Nor-Cal Lending. "A lot of people don't know that. They think they are upside down, and there is no hope."

Nelson said three months ago, one of the 30 customer loans he had in the works was a refinance. Today, eight of his 10 loans are refinances.

Rates have held steady at less than 5 percent for 12 weeks, while months ago real estate industry insiders speculated that the rate would rise to more than 6 percent by now. Much of the worry stemmed from the Federal Reserve's decision in April to stop buying mortgage-backed securities.

Still, with the eye-popping sub-4 percent rates available, refinancing isn't for everyone. Even people who might qualify need to see if the math works out for them, considering the costs and fees.

"In general, if you can shave 1 percentage point or more off your rate, you'll get some good saving," said John Anaya of Century 21 Mortgage in Modesto.

He said on average homeowners can save $80 to $100 a month on their mortgage payment. Some have saved as much as $300 per month. And the longer a person plans to stay in the house, the better the deal.

Also, the longer a person has left on his or her loan, usually at least 10 years, the wiser it is to refinance.

Another big value with today's low rates is to refinance to a shorter-term loan. The rate will drop, and in many cases, the home payment will stay about the same.

"If someone has a 30-year note and has the value, they and can cut their term in half," Anaya said. "Everyone wants to be able to pay off their place faster. So it's very beneficial. If you can do that, now is the time to do so. Rates are so low, we're not going to see them like this again."

Anaya said it never hurts for homeowners to call a mortgage professional to see if they would be eligible.

While there is no magic formula, Hawes said everyone should at least consider refinancing.

"Everything is so different right now," he said. "So we're working with each individual person and seeing how it works out for them, whether it's a good decision and bad decision. These rates are pretty phenomenal."

For homeowners such as Mixon, the savings were well worth the initial phone call. He said he became interested first when rates fell to 4.9 percent, and then received a flier from Nelson's Megastar Financial Corp.

"I knew nothing about refinancing, but it was a pretty simple process," Mixon said. "I went down there for two hours one day, then for 15 minutes to sign documents and that was it. I'm very, very pleased. It's nice to have the extra money."

Bee staff writer Marijke Rowland can be reached at mrowland@modbee.com or 578-2284.

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