Golden opportunity for savvy mortgage clients

Real Estate Weekly, Feb 16, 2005 by Alan Rosenbaum

There is an interesting phenomenon taking place within the mortgage industry today that can provide a golden opportunity for savvy mortgage clients.

Starting last year, the Federal Reserve reversed its post 9/11 policies and has finally started to raise their Federal Funds Rate.

As these rate changes have taken effect, short term products such as LIBOR programs and especially Home Equity Lines of Credit that are tied to the Prime Rate have risen significantly.

The aforementioned phenomenon is that while these short term rates have increased rapidly, longer term rates have remained stable or, in some cases, even fallen.

This disparity in the overall yield curve can provide a great opportunity for homeowners, assuming they act quickly.

By refinancing short term adjustable rate mortgages and Home Equity Lines of Credit into longer term adjustable or fixed rate mortgages, a homeowner can hedge against the further and all but certain erosion in rates expected later this year.

Recently, many of our valued clients have contacted us regarding the possibility of refinancing their mortgages into a more rate stable product. While some of these clients have had to take on a slightly higher rate, this initial higher payment is mitigated by the security that their rate will not go any higher as mortgage rates start to rise.

For example, in 2004 a homeowner secures a $500,000 1st mortgage as a 5/1 ARM at 5% and a $200,000 HELOC at Prime, which in June of last year was a very low 4%.

While his primary mortgage has not changed, his HELOC rate has since risen to 5. 5% and may very well be as high as 6.5% by year's end.

This all but inevitable rate change will produce a markedly higher blended rate.

But, by refinancing both loans into one today, this homeowner will rate protect all of his/her debt and actually save money over time, in some cases, immediately.

There is also a large segment of the mortgage market that took out 3/ 1 and 5/1 ARMs at the height of the refinance market who are now realizing that these rates will be adjusting in just a year or so.

With current long-term rates so attractive, many of these homeowners are taking steps now rather than later when rates will most likely be significantly higher.

The last real benefit of the market stability in long-term rates has also been a major impetus to the strong growth of the Real Estate Market.

These excellent long-term rates are helping to keep the purchase market moving towards yet another excellent year.

ALAN ROSENBAUM,

PRESIDENT, C.E.O.,

GUARDHILL FINANCIAL CORP.