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Rate dip fuels refinancing: Homeowners who qualify swamp lenders(New Haven Register (New Haven, CT) Via Acquire Media NewsEdge) Feb. 1--How low will they go? For homeowners like Dave Pallotta, historically low interest rates are an enticing incentive to refinance mortgages, but rates' fickle nature makes it a constant gamble to decide when to sign the deal. And for those who opt to roll the dice, qualifying for those rates isn't as easy as it used to be. "They literally will dip down for a day," said Pallotta, who lives in Monroe and is a senior sales executive at the NIA Group in Milford. For him, the recent decision to lock in rates in early January and refinance will pay off -- literally. Pallotta expects to chop $450 off his monthly mortgage payment and save about $75,000 over the life of the 30-year fixed-rate loan. "It's phenomenal," he said. Pallotta bought his single-family home eight years ago and took out a mortgage with a 6.25 percent interest rate, then took out a second mortgage in 2005 with an 8 percent rate. His newest mortgage, which will absorb the previous two and is for around $400,000, has a mortgage rate of 4.875 percent. Low rates are spurring many homeowners to consider refinancing, said Robert Graybill, senior mortgage consultant at Scholastic Mortgage in Milford, who helped Pallotta with his loan process. Determining when to finalize the deal, though, can be tricky for those aiming to get the best rates they can. "It's all timing," Graybill said. "Everybody wants that crystal ball." Rates on 30-year mortgages dipped again last week but, on average, remained above 5 percent, according to Freddie Mac. The average rate on a 30-year fixed loan was 5.10 percent last week, down from 5.12 percent the previous week. At this time last year, the 30-year fixed-rate mortgage averaged 5.68 percent. Rates have been dropping since the Federal Reserve said in November it would buy up to $500 billion in mortgage-backed securities to add liquidity to the financial markets. The intent was to get banks to lend more money in an effort to bolster the faltering housing market. Whether rates will continue to fall remains to be seen, and area experts are split. "There's no way that rates are going to keep going down," said Barbara Pearce, owner of North Haven-based H. Pearce Real Estate, which has a joint venture with Webster Bank called WP Mortgage. "This is the lowest rates are going to go. People should do this (refinance) now." Pearce said banks are likely to start raising rates because the federal money that some banks are getting from the government, through various bailouts and deals, comes with interest costs attached, meaning banks cannot afford to keep mortgage rates low indefinitely. But others, including economist Donald Klepper-Smith, foresee rates falling further. While he expects rates to fall into the summer, perhaps down to 4.5 percent range, he said homeowners should not necessarily play the waiting game and rather should lock in rates when they can afford it. "If the number works, you refinance now," said Klepper-Smith, who is chief economist at DataCore Partners LLC in New Haven. Traditionally, a benchmark for determining whether to refinance was if homeowners could lower their mortgage interest rate by at least 1 percent. Some area bank officials, however, said that in the current market even a decline of 0.5 or 0.75 percent could make refinancing worth the effort. It is important for homeowners to be aware, though, of the various costs that come with refinancing. In some cases, it may be more economical to remain in a current mortgage rather than enter a new one. With insurance, fees and other various closing costs tacked on, the price tag for a refinance can add up quickly. Bankrate.com, which tracks mortgage rates, recently released its 2008 closing cost survey and found that last year the national average for closing costs on a $200,000 loan was $3,118. For some, the costs of refinancing will outweigh the benefits. David and Cathy Dean of Wallingford had refinanced their single-family home twice in the 20 years they've owned it and recently opted to refinance for a third time, getting an interest rate of 4.5 percent on a 15-year fixed-rate loan. "The obvious motivating factor was the rate," David Dean said. "It's going to save us some money each month. The overall impact in terms of monthly cash flow, was attractive." Rates fluctuate frequently, he said, but "I'm very happy with what I've got. It's all speculation, obviously. Everyone is gambling as to how low the rates could go." Shannon Kiss, a homeowner who recently refinanced her mortgage on her Hartford area condominium, expects her gamble to pay off as well. Her original mortgage on the home, which she took out 2 1/2 years ago, had a 6.75 percent interest rate but her new 30-year fixed-rate loan has a 5 percent rate. The difference, she said, will save her about $200 a month. She's so pleased with the savings, she is urging people she knows to consider refinancing as well. Area mortgage specialists say they are inundated with refinancing applications. "It's as busy has I've seen it in many, many years. (Activity) doubled from November to December and then it doubled from December to January," said Thomas Hylinski, senior vice president and head of retail lending at NewAlliance Bank. "It's all about the rates," he said. "Seventy percent of the customers are going for fixed-rate loans and the majority of those people are going for the 30-year fixed-rate loan." But while rates may be attractive, qualifying for them is not as easy as it once was. The financial crisis has tightened lending standards for all types of borrowers. "It's harder to qualify for that (low) rate today," said Christopher Dannen, vice president and residential lending sales manager at Bridgeport-based People's United Bank. "Your credit score has to be higher than it used to be." Most area banks said borrowers need a credit score of at least 720 to qualify for a low interest rate. Lower credit sores often bringing additional fees and costs, such as expensive mortgage insurance, that negate the benefits of refinancing. Previously, borrowers could get by with a score of 620, Dannen said. Some people are "stuck" because the economy has forced them into a situation where their debt equals or exceeds the value of their home, he said. A loss in home value is the biggest potential roadblock for people aiming to refinance and is impacting "a broad swath" of borrowers, said Dennis Quartermane, principal and senior officer at First Community Capital in New Haven. Even those with great credit scores may have difficulty getting loan approval if they have a troublesome amount of debt in proportion to their home's value, he said. But overall, he added, most people are able to qualify for loans. Dannen agreed, saying that for those who meet the criteria, "there's no shortage of money," Dannen said. "The banks are flush with cash and liquidity to lend," he said. To see more of New Haven Register, or to subscribe to the newspaper, go to http://www.nhregister.com. Copyright (c) 2009, New Haven Register, Conn. Distributed by McClatchy-Tribune Information Services. For reprints, email [email protected], call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. |