A NEW TYPE OF HOME REFINANCE BOOM
February, 2001 by Jim Woodard We're now in another and rather unique "refinance boom" period in the real estate market. It's not surprising that so many people are seeking a new mortgage loan to refinance their home, since interest rates are the lowest they've been in 21 months, and dipping lower as we write. From 50 to 70 percent of all mortgage loans applications today are for refinancing a home. And 30 percent of those homeowners applying for a refinance mortgage want cash in addition to refinancing their loan balance, according to Pete Wissinger, president and COO of Wells Fargo Home Mortgage. In most cases, the cash is used to consolidate other debt, but reasons for pulling cash out of the transaction is wide-ranging, he noted. However, it's surprising how many homeowners don't seek extra cash. They just want a better loan with lower monthly payments. "In some respects, the current refi boom is different from those in the past," Wissinger said candidly during an interview. "For example, a significant number of homeowners applying for a new loan are not expecting a substantial reduction in their interest rate. Some will not experience any reduction. They just want to change their existing variable-rate mortgage to a fixed-rate loan, now that those rates are so low. Or they want to escape an upcoming balloon payment in an existing loan." Those mortgage rates are indeed low. In fact, there have only been 11 months out of the last 25 years when 30-year mortgage rates have averaged lower than 7 percent, as they are today. This is a rare opportunity for persons who would benefit from refinancing. It's interesting to note that the current refi boom didn't really start until early January, even though the low mortgage rates started in September. Wissinger believes this is because the media was so preoccupied with presidential election news it didn't give coverage about low mortgage rates.
Public response to newly emerging opportunities is largely driven by press coverage, he noted. "This is not only a good time to refinance an existing mortgage loan, it's also a particularly strategic time for growing families to move up to a larger home. Home values increased by about 7 percent last year. Combine that kind of value appreciation with today's low mortgage interest rates and you have a very positive home-buying situation," Wissinger said. Refinancing is not always the right course of action for homeowners. A number of factors should be considered before starting down that road. Here are a few tips: - Determine the length of time you plan to stay in your home. From a cost perspective, you'll need to stay in your home from three to five years to recoup the costs associated with refinancing. Those costs typically add up to 1 to 2 percent of the loan amount. - Be sure you understand all the costs associated with refinancing. Ask your lender to provide a complete list of costs, including all upfront fees such as origination, appraisal, credit report, recording fee, etc. - It's usually, but not always, best to stay with your current lender. By staying with your lender you can often avoid much of the qualifying procedures that would be required with a new lender, thus saving time and money. That's assuming you have a good payment history with your current lender. - If you're not satisfied with your current lender, shop around. Contact several lenders and compare their offered interest rates and costs, along with their products and services. It's usually best to focus on seasoned lenders that have established a well-known and respected reputation in the residential real estate lending field. - If possible, use the Internet to help shop for the best lender and calculate your personal need for a refi loan. Many lenders now offer refinance calculators and other helpful online tools on their Web sites. | 
