Lowest interest rates in 40 years spurs refinancing

ORIGINALLY WRITTEN DON RATZLAFF
Historic 40-year lows in mortgage interest rates have been a boon for many area homeowners, but its effect on real estate sales is harder to track, according to those who work in the field.

Those rates have inched upward in the past week or two as a combination of interrelated factors-including the start of war and a rise in the stock market-have sparked a flurry of rate changes.

“We’re getting up to two and three rate sheets a day because of the volatility in the financial markets right now,” said Delores Dalke, who has one foot in the mortgage financing business through the Commercial Federal branch office she operates in Hillsboro, and the other in real estate as owner of the Real Estate Center.

And while the volatility has had the net effect of slightly higher rates, the rates are still advantageous for consumers.

“I’d say refinancings are definitely up,” said Brad Bartel, vice president of Emprise Bank in Hillsboro. “The market is still very active. We see people refinancing for the second time in just a few years.”

In part because of the current activity in refinancing, Emprise recently introduced new products that now offer long-term (15-year and 30-year) fixed-rate loans for any homeowner interested in applying for one.

Previously, the bank offered in-house loans that were locked in for only three-year periods.

And how low is low interest? Rates vary according to the nature of the loan, but Dalke said she did one loan on one day at 4.875 percent for 15 years and with no points.

Should I refinance my house?

The old rule used to be: refinance your mortgage if the new rate was 2 percent lower than your existing rate. But local institutions who refinance mortgages said there’s more for a homeowner to consider than just the interest rate itself.

The more pertinent question is: How much is the loan going to cost you, and how quickly can you recoup those expenses?

Beyond the interest rate itself are the costs of refinancing, which vary-sometimes dramatically-from lender to lender, and are also affected by the length and amount of the loan, and whether the homeowner wishes to purchase “points” with the loan.

“We look at costs because the costs of these programs all vary so much,” Bartel said. “Some of the brokered loans we compete with are very high in fees, even though the rates are low.”

Dalke said she would especially caution homeowners about “great refinancing deals” coming to them from telemarketers and through the Internet.

“We had a call this morning from someone who had a loan with us who had received telemarketing calls from people to redo her loan with an out-of-state lender,” Dalke said. “The rate was exactly what we’re offering, but the closing costs were twice as high.

“I would suggest to people that they be sure to shop the closing cost as well as the rate.”

Once the costs are determined, homeowners need to have a pretty good idea about their intention with their home.

The key question: Do you plan to live in the home long enough to recoup the cost of refinancing?

“I always recommend that if you can get that amount of money back in what you save in payments within two years, you should go ahead and do it,” Dalke said.

A related component homeowners need to consider is whether they will need to finance major life events in the near future-such as paying for a major remodeling job, a wedding or college-that may require them to draw the equity back out.

“Then there’s not much sense in locking in for a long-term rate because you’re not going to keep it long term,” Bartel said.

“You just have to figure out what your costs are and how much benefit you receive from refinancing versus staying where your at and looking what your plans are for your home.”

Bartel added that a refinancing loan over 30 years, even at low rates, may not be in a homeowner’s best interest in the long run, even though it might lower the monthly payment.

He said it’s still better financial management to pay off a home loan over a shorter period, such as 15 years-if the payments are at all affordable.

“I would say use the (low interest) rate to pay the house off sooner-shorten the loan even it it means keeping the payments about the same,” Bartel said.

Even though the advice sounds self-serving, local lenders said customers looking for refinancing deals ought to consider the source of their loan as well, and whether they want to face the hassle of dealing with an out-of-state lender.

That was an important factor in the program recently begun at Emprise, Bartel said. He said they opted for a program that allowed them to service the loans locally.

“That really appealed to us because you have some accountability, and you want to take care of your customers in an appropriate fashion.”

Effect on the local market

So what effect has the record low interest rates had on the local market?

It’s hard to know, say local real estate agents, because a variety of factors can affect a market at any given time.

They agree that over the past several months, home sales have been slow, and agents credit the low interest rates with keeping it from being even slower.

“It’s kept us going, that’s for sure,” said Marlene Fast of Fast Realty. “And the rates are starting to go up. The feds have said the rates have hit the lowest that they’re going to. The last two that we’ve read are already starting to go up.”

Though the past several months have been slower than usual, Dalke said she’s noticed some increased activity recently.

“In the last few weeks we have seen a lot more activity with people out looking,” she said. “There’s probably been more of a variance this year than what I’m used to.”

Dalke said the low interest rates have probably helped keep the local market relatively stable-which has been a hallmark for Hillsboro market over her 24 years in the field, she said.

“I can look back to all these years that’s I’ve been doing this and the number of transactions really doesn’t vary much from one year to another-and I’m even talking about years when the interest rates were 15 to 17 percent.

“We are just a good, stable community in that we don’t ride up and down with so many other markets out there. We never see prices skyrocketing and we never see them falling like crazy like they do in other places.

“As long as people maintain their homes, take good care of them, keep them in good condition, the prices hold their own very well.”

That said, though, with interest rates apparently creeping upward, people considering a housing change ought to act sooner than later, real-estate agents advise.

“Because of our good stable market that we have here, anytime is a good time to purchase,” Dalke said.

“But with the interest rates as low as they are now, even though they’ve come up a little in the past weeks, they’re still remarkably low. People shouldn’t be afraid to go ahead and get in.”

Added Fast: “It’s been extremely slow (the past few months), which is crazy because this is the time people should have been buying. But I understand why they don’t.

“Still, if you’re going to do something, you should do it quickly. The rates are going up.”

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