Low interest rates spark jump in home mortgage refinancing

0 Comments | La Crosse Tribune, Sep 23, 2002 | by Cahalan, Steve

With interest rates at the lowest levels in decades, Mike and Sue Klauke of Holmen, Wis., are refinancing their home mortgage for the second time in a year.

"We're like the king of refinancers," Mike joked last week.

"Looking at it from a financial standpoint, it just made sense" to refinance a second time, said Klauke, who also owns Klauke Financial and Insurance Services in Onalaska. "Over 15 years, we'll have substantial savings" because of the lower interest rate.

The Klaukes built their home four years ago, when they obtained a 15-year mortgage at an annual interest rate of just under 7 percent and with monthly interest and principal payments of about $1,100.

About a year ago, they refinanced their mortgage. They obtained a 15-year mortgage with an interest rate of about 6.1 percent and with monthly interest and principal payments of about $940.

The Klaukes are in the process of refinancing for the second time. Klauke said their new mortgage will be for 15 years, with an interest rate of slightly more than 5.6 percent and with annual principal and interest payments of about $870.

The couple makes extra principal payments and hope to have the 15-year mortgage paid off in 12 to 13 years, before 6-year-old daughter Allison starts college. "We want to not be making house payments when our daughter goes to college," Klauke said.

Refinancing activity increases

A large amount of home mortgage refinancing has occurred all year because of low interest rates, said Jeff Larvick, residential lending manager in La Crosse for First Federal Savings Bank La Crosse-Madison.

In the last 30 to 60 days, interest rates have been the lowest he has seen in his 24 years in the business, Larvick said. "Consequently, refinancings are up substantially in the last 30 to 60 days," he said.

With the increase in applications, the home mortgage refinancing process is taking longer, Larvick said. "It has bogged the system down, from the standpoint that everybody who's involved in the transaction, from appraisers to title companies to lenders, are all feeling the crunch of the increased volume.

"It is taking more time in a lot of cases to refinance a customer, at least 45 days if not slightly longer than that right now," Larvick said. In the last few years, refinancing a mortgage typically has taken only about 30 days.

At First Federal, borrowers can lock in the interest rate when they apply, if they choose. "That's what most of our customers are doing now," said Kevin Strangman, First Federal vice president and residential lending operations manager.

Interest rates have remained low this year because of the struggling economy and struggling stock market, Strangman said. Mortgage rates tend to follow the stock market, he said. "And when the stock market is struggling or going down, mortgage rates will tend to follow suit. Until some sort of recovery kicks in consistently, most people don't see the mortgage rate environment changing anytime soon."

If it makes sense, refinance now

But Strangman and Larvick recommend against trying to guess when interest rates will hit bottom. If it makes sense to refinance now, go ahead and do it, Larvick recommended. "Try not to time it, as to when the rates hit bottom," he said. "Because more than likely, you may not hit the bottom and you may wait too long."

The boom in refinancings means First Federal probably will set a new record in 2002 for annual loan volume for one- to four-family homes. Loans for those homes from January through August totaled about $1 billion.

Refinancing has accounted for about 60 percent of First Federal's home mortgage volume so far this year, Strangman said. "It's been running more like 75 to 80 percent in the last 30 to 60 days, because there's been heavier refinancing activity recently," he said.

On Friday, First Federal was offering 15-year fixedrate mortgages with a 5.625 percent interest rate, and 30-year fixed-rate mortgages with a 6.20 percent interest rate, both with no add-on fees known as points.

Rates declining since summer

"Last year, it started in the spring and the bottom was in the fall," Colin Fleming, assistant vice president of Park Bank in La Crosse, said of the decline in mortgage interest rates in 2001.

This year, mortgage interest rates have been declining since early summer, and the bank has been especially busy with refinancings in the past 30 to 60 days, Fleming said.

"This is the lowest I've seen in my 10 years" in the business, he said of current interest rates.

On Friday, Park Bank was offering 15-year fixed-rate mortgages with a 5.625 percent annual interest rate and no points and 30-year fixed-rate mortgages with a 6.25 percent annual interest rate and no points.

Fleming doubts interest rates will increase significantly later this year unless the economy improves.

But he recommends against waiting for rates to drop further. "If you wait for the bottom, you're rarely going to find it," he said. "The ones who hit it are lucky." If it makes sense to refinance now, do it "Because you can always refinance again," he said.