How low can they go?

0 Comments | La Crosse Tribune, Jun 22, 2003 | by Cahalan, Steve

A continued decline in interest rates has caused another jump in home mortgage refinancing in the La Crosse area in the past two months.

"It's been crazy," Cherie Schommer, a mortgage loan officer with U.S. Bank in La Crosse, said of the number of people who have been applying or calling about refinancing their home mortgage.

"In the last couple months, there have been a lot of headlines" about continued declines in interest rates, Schommer said. "When people see that in the

newspaper, in the news, that's when we get all the phone calls."

On Thursday, Freddie Mae, the mortgage giant, said rates on 30-year fixed-rate mortgages remained at record low levels in its weekly nationwide survey. For 15year fixed-rate mortgages, interest rates edged up slightly after dropping to a record low the previous week.

Schommer guessed about half of those who are refinancing home mortgages now already had refinanced at least once in the past 1 1/2 years because of declining interest rates. "There are some people that, believe it or not, it's their fourth refinance in the last year and a half," she said. "'Other people may have bought their house 10 years ago,

have never refinanced, and they're just coming in now."

She estimated refinancings currently account for at least 75 percent of all home mortgage applications at U.S. Bank in La Crosse. "I think that's been a pretty solid number for the last six months," she added.

When to refinance

How do you decide whether it's a good time to refinance?

"The bottom line is to figure out what your savings are going to be monthly, and how much it's going to cost you to refinance," Schommer answered. Then figure how long it will take to recoup the cost of refinancing. "Are you going to be in the house that long?" Schommer asked. "If you are, it's a good move."

On Thursday, U.S. Bank in La Crosse was offering 15-year fixed-rate mortgages with a 4.75 percent annual interest rate, and 30-year fixed-rate Mortgages with a 5.375 percent interest rate, both with no addon fees known as points.

One year ago, the bank was offering 15-year mortgages with a 6.25 percent interest rate and 30-year mortgages with a 6.75 percent interest rate.

Swamped with calls

The number of people calling or applying to refinance home mortgages has been "incredibly strong," said Kevin Strangman, vice president and residential lending operations manager for La Crossebased First Federal Capital Bank.

"We've just been swamped with calls in the last month or so," Strangman said. "And with actual applications and (loan) closings."

Refinancings currently account for about 80 to 85 percent of First Federal's home mortgage applications, Strangman said. "Purchase (of homes) activity and construction activity has still been real strong," he said. "But it's just kind of gotten dwarfed overall by the amount of refinance applications that just keep pouring in."

Both Strangman and Schommer said their banks have had to assign extra people to handle home mortgage applications and inquiries about refinancing.

Multiples

Since interest rates began declining in 2001, Strangman said, some people already have refinanced their home mortgage three or four times. And with lower interest rates, he said, "A lot of people are shortening the terms, going more toward 20 or 15 years rather than the 30 years, with a minimal change in their payments."

Strangman said interest rates have fallen since 2001 because the Federal Reserve Board "has had an expansionary monetary policy. So they've been encouraging lower rates, dropping the discount rate, to try and stimulate the economy. The stock market's been struggling.

"Typically, mortgage rates tend to follow the stock market," Strangman said. "If the stock market drops, typically mortgage rates will follow suit. And when the economy starts to recover, the stock market tends to go up, and so do mortgage rates, typically."

Strangman and Schommer agreed that if it makes sense to refinance, it's best to go ahead and do it, rather than try to guess on when interest rates will hit bottom.

Most people lock in interest rates when they apply at First Federal, Strangman said.

Record pace

In 2002, First Federal originated a record $2.2 billion in residential loans. With interest rates even lower than last year, First Federal probably will top that figure in 2003, Strangman said. It originated about $1.3 billion in residential loans for the first five months of this year, he said.

On Thursday, First Federal was offering 15-year fixed-rate mortgages with a 4.75 percent annual interest rate and 30-year fixed-rate mortgages with a 5.35 annual interest rate, both without points.

One year ago, its interest rates were about 6.2 percent for a 15-year mortgage and about 6.7 percent for a 30-year mortgage.

"What I'm reading and hearing is that rates are excellent, and take advantage of low rates," Strangman said. From what he has read, "Most people don't see a real sharp increase in mortgage rates through the rest of the year."