The mortgage opportunity of a lifetime

Real Estate Weekly, Feb 18, 1998 by David X. Stumpf

Last year, the turmoil in Asia had been causing instability both on wall Street and abroad. The Asian market has since regained a lot of lost ground during the first week of February, which in turn has caused a rebound on Wall Street. The Dow Jones picked up from where it left off last August and set a new record on February 10th.

Investors, however, should not become complacent and presume the worst is already over in Asia. Indeed, Federal Reserve Chairman Alan Greenspan warned that "we have as yet experienced only the peripheral winds of the Asian crisis."

There has been four recent shift in capital by investors into the more safe and secure bond market, causing a rally in bond prices at the start of this year. Greenspan commented in December that there has been "a flight to quality by investors seeking shelter from those markets that have lowered short term rates here." With this in mind, the Feds elected to leave interest rates alone when they met earlier this month.

The result has been a surge in bond prices and conversely, a sharp decline in bond yields. The rally in the bond market caused the 30-year Treasury Note to drop to historic lows in early January of this year, and, since most lenders peg their interest rates to the bond yields, that means interest rates are also down. That's good news for real estate investors.

So go ahead and pinch yourself, because you're not dreaming. Interest rates have been hovering at the lowest level we have seen in decades, and there has simply never been a better time to arrange a new mortgage.

The New York real estate market has definitely rebounded over the past year. Competition for good loans has caused some lenders to drop their mortgage origination fees in addition to the very attractive spreads now being offered in the current mortgage market.

Time to Refinance

Even though you may have refinanced your mortgage just a few years ago, it may now be time for you to take another look at your current mortgage once again. Fierce competition among lenders has caused some banks to lower, or even waive, their mortgage origination fees. This is good news for borrowers currently considering refinancing their commercial real estate.

Depending on your prepayment penalty, borrowers may now break the "two percent" rule of thumb in refinancing. The traditional wisdom held was that a borrower should reduce their interest rate by at least 2 percent before incurring the cost of refinancing. With some lenders now waiving their origination fees, why not go ahead and take advantage of the opportunity to lower your payments?

In addition, with lower closing costs, it may make sense to refinance even if you lower your interest rate by less than two percent.

Record Levels of Mortgage Activity

The only catch for current borrowers is that with interest rates dropping this low, there are now literally thousands of owners all trying to take advantage of the favorable prevailing interest rates. refinancing activity is now at a furious pace, and many lenders are inundated with new mortgage applications. This means it is now likely to take you longer to close out your loan without the clout of an active mortgage broker.

Now more than ever, the current mortgage market requires the expertise of an active mortgage professional. With the surge in refinancing activity, it has suddenly become very easy to fall through the cracks and be overlooked by busy mortgage bankers, who are relying on mortgage brokers to bring them a volume of completed packages. Many bankers can no longer offer borrowers the individual attention afforded by a competent mortgage broker.

The diversity of mortgages now being offered can also be staggering to the uninitiated borrower. It seems even more evident that today, it is the money that is chasing the borrower. Multi-family lenders are making every effort to tailor their loans to the needs of real estate owners. There are lenders with three-, five-, seven-, 10- and 15-year money available at various spreads and roll-over options. If you have not been active in the commercial mortgage market for a few years, then you may be unaware of the opportunities that are now out there.

Underwriting criteria has also been eased. The improved New York real estate market has begun to show signs of inflated real estate prices. Appraisal values have also risen, and banks have in turn responded. However, we still have not reached the relaxed lending environment we saw in the "Go-Go Eighties." So, get out your current mortgage and check your prepayment penalty, because time is wasting and interest rates have not been this low in decades.