Mortgage refinancing paying handsome dividends
Keith and Andrea Weightman of Mt. Lebanon decided it was time to refinance their 1-year-old 7.75 percent mortgage. Their move will pay off with savings of $125 a month, Andrea said.
'We received a 6 3/8 percent rate through Omega Financial, and the savings comes at a time when I'm not planning to return to work since our baby is due any day now,' she said. The deal didn't cost the Weightmans money up front because it included their closing costs in the new 30-year fixed-rate mortgage.
Doug Farrell and his family decided to refinance their mortgage, too.
'We have an 8 percent-plus rate on our 30-year mortgage, and now that we are in our new home in Greensburg, and with rates much lower, it was the ideal time to refinance,' said Farrell, an attorney. He applied at S&T Bank for a lower-rate 30-year loan.
Thirty-year fixed-rate mortgages remain the most popular loans for purchases and in refinancing, but lenders say 15-year fixed-rate loans are becoming more popular.
Art Groll can attest to that. So can Joseph and Kara Keaney.
When he purchased his home in Ross Township last year, Groll signed up for a 30-year fixed-rate mortgage at 8.25 percent. 'I kept an eye on interest rates, so now that they're lower, I decided to refinance,' he said.
But he's switching to a 15-year loan, with a rate between 6.125 and 6.25 percent. 'While the monthly payments will be slightly higher, I am a single person with one income so I wanted to reduce my mortgage obligation in the future,' Groll said.
The Keaneys had a 30-year fixed-rate loan at 7 percent. Now, they have a 15-year fixed-rate loan at 6 percent and no points on their Peters Township home.
'Not only were we able to reduce the term of the mortgage, by which we'll save thousands of dollars, but we were able to terminate a home equity loan that had an 8.65 percent rate and consolidate it into our new mortgage,' he said.
Mortgage experts say the advantages of refinancing include:
'Well over 50 percent of our current mortgage applications are to refinance existing mortgages,' said Bernie Selkovits, senior loan officer with Omega Financial Services, Carnegie.
'The refinancing market increased drastically about 10 to 15 days ago, resembling the rush to refinance mortgages that we experienced in late 1998 and 1993,' Selkovits said.
Some homeowners are even increasing the loan amount because the rates are so good.
'With the cash pay out they receive, they are consolidating and paying off other debts, using the funds for home improvements and, in some cases, using the funds to pay for college,' said Jane Darcangelo, vice president of residential lending, Dollar Bank.
The refinancing market's increase is the result of significant declines in overall mortgage rates in the past month.
Nationally, the average rate on a 30-year mortgage fell last week to the lowest in three years, according to Freddie Mac, the No. 2 buyer of mortgages from local lenders. The 6.64 percent average for a typical mortgage is the lowest since October 1998. The average rate on a 15-year mortgage, a popular refinancing option, dropped to 6.11 percent, the lowest since Freddie Mac started tracking it in 1991.
At Fidelity Savings Bank, up to three-fourths of all mortgage loan applications now are for refinancing, said Mike Mooney, executive vice president and chief lending officer. 'And there are still many homeowners waiting before financing, because either they believe the (mortgage) rate will go lower, or they are concerned about layoffs or unemployment.'
'And August and September figures indicate refinancing will be 64 percent of our business,' Hanna said. 'We anticipate the percentage will even be higher during the fourth quarter.'
'We have been overwhelmed with phone calls from homeowners seeking information on our current rates,' said Nancy Smith, assistant vice president of mortgage lending at Irwin Bank and Trust.
At Great American Federal, although refinancing has been 34 percent of all loan originations since Jan. 1, it has increased to 53 percent since Sept.1, said Patricia Schultz, assistant vice president residential lending.
'In excess of 60 percent of all refinanced mortgages this year have been 15 years, but in September, they made up only 38 percent of all loans,' she said.
Terry Rice, owner of Patriot Lending, said refinancing over the past few months has been 50 percent of all mortgage originations.
Even the old rule-of-thumb that refinancing a mortgage should only be done when there's a 2-point difference in the interest rate, no longer is followed.
'We've gotten calls from homeowners with 7 percent or 7 1/4 percent loans, but it normally doesn't pay for them to refinance unless they plan to stay in their home for a long period of time,' said Joanne Duggan, vice president of mortgage lending for S&T Bank.
Many homeowners no longer wait for a 2 point difference before refinancing. Instead, it's more like 1.25 and 1.5 percent.
'The 2 point rule is really out of the window, and people are locking in at these lower rates,' Fidelity Savings' Mooney said.
Omega's Selkovits finds the point difference may be only 1 point, lower than the 1.5 points in the past. And Rice said there actually is no limit on the difference in rates. It all depends on whether the homeowner finds a savings by refinancing.