Homeowners refinancing loans as rates keep falling, Cape-area bankers say

As interest rates hit record lows this month, local bankers say customers are clamoring to refinance.

"I never dreamed in a million years a 30-year loan would be under 4 percent," said Janet Esicar, senior vice president of consumer and mortgage lending at First Missouri State Bank. "I can't imagine they can go much lower."

Freddie Mac reported last week the average rate on a 30-year fixed mortgage fell to 3.89 percent. That's lower than the previous record of 3.91 percent set three weeks ago. Bankers have been keeping records on mortgage rates since the 1950s. The average on a 15-year fixed mortgage dropped to 3.16 percent, down from a record low 3.21 percent three weeks ago.

In the early 1980s home mortgage interest rates peaked around 18 percent, then fell steadily into the single digits through the 1990s. One year ago, the average rate on a 30-year fixed mortgage was 4.7 percent.

Local bankers say they're seeing an increase in customers hoping to take advantage of today's low rates to reduce their monthly payment, or shorten the length of their loan by refinancing.

"People need more money in their monthly budget, so if they're lowering their payment $100 a month, that's $100 they can use for other things," said Jane Myers, vice president mortgage loan originator at Bank of Missouri in Cape Girardeau.

Refinancing can make good financial sense for customers looking to consolidate their debt, Esicar said. "We've had people combine home equity loans, or roll in some consumer debt they have to try to get down to one monthly payment and overall lower their monthly expenses as well," she said.

Ryan McClard, vice president of mortgage lending at Capaha Bank, said his customers seem comfortable with their current payment amount but are looking to reduce their total debt.

"Virtually every loan that I've done in the last six months has been just to reduce the term," he said. "The majority of people are dropping down from say 27 years left on their mortgage to doing a 20-year term."

While people may have different motivations for refinancing, there's no doubt more people are doing so both locally and nationally.

According to the Mortgage Bankers Association, during the week ending Jan. 13, 82 percent of mortgage applications were refinances. That's the highest refinance share since October 2010.

In 2007, before the recession, the mortgage market reached its peak in terms of purchases, said Kevin Greaser, community bank president at Alliance Bank.

At that time, about 60 percent of Alliance Bank's loans were for the purchase of a home and 40 percent were refinance loans, Greaser said. In 2011, about 70 percent of Alliance's loans were to refinance and 30 percent were for the purchase of a home, he said.

Bankers say a homeowner's interest rate needs to fall by 1 percentage point to make refinancing worth it. Refinancing typically takes 30 to 45 days.

"Everyone's circumstances are different, so it makes sense to meet with a mortgage loan originator and get the specifics that fit their own needs," Greaser said.

Homeowners also have to factor in the cost to refinance, which includes a new appraisal, credit report, title search and document recording fees. Myers said closing costs average about $2,200, depending on the mortgage amount.

It's also important to consider how long a homeowner plans to stay in their house, bankers said.

"If you're not going to be there over five to seven years, it isn't going to be beneficial," Myers said.

Customers' credit scores can also make a difference in the interest amount they qualify for when refinancing, bankers said.

"It's a huge difference, especially the way Fannie and Freddie have changed the structure these days. They put a strong emphasis on credit scores," McClard said. "Previously, if you had a credit score of 680, you qualified for the best rate. If you don't have a credit score of 720 and higher now, you're not going to qualify for the best rate, or if you do, your fees will be higher."

McClard said it doesn't mean customer's with lower credit scores can't refinance, but it does mean they may end up with a higher interest rate than someone who has a credit score above 720.

As rates keep falling, customers keep refinancing, McClard said. Capaha Bank is even offering an incentive program where the bank pays customers' refinancing costs for them.

"We're getting people who have already refinanced once, twice, maybe even three or four times in the last 36 months," McClard said. He's got one customer who recently refinanced for the fifth time.

Bankers are hesitant to predict where rates may go in 2012.

"It's hard to say. I think things are up for grabs and likely to change after the election in November," Esicar said. "I tell people to get to a place where it makes good sense and you're comfortable there and we'll get it taken care of and then just stop looking at rates. Just get there and get happy."

mmiller@semissourian.com

388-3646

Pertinent address:

Cape Girardeau, MO