It's Time to Refinance; If Stock Prices Rise, Mortgage Rates Will Rise

If mortgage rates begin inching back up, weary mortgage brokers might get a moment to count all the commissions they have earned during the busiest time in the industry's history.

Americans refinanced more mortgages during the first week in October than any week on record, according to the Mortgage Bankers Association of America.

The action has been just as busy across Western New York.

"September as a whole was our busiest month ever and that's primarily because of refinancing," said Larry A. Schiavi, senior vice president of HSBC Mortgage Corp. M&T Mortgage Corp. has also been running at record volume, cranking out more than billion in mortgages during September. About 70 percent of the bank's current business is refinancing.

The story is in the numbers. Rates on 30-year fixed, monthly mortgages have been hovering around 6 percent, rates unheard for the baby boom generation.

Fifteen-year mortgages even dipped below 5.5 percent at some banks, making it affordable for a large chunk of borrowers to cut years off their loans.

Richard Sander, 33, just bought a 3-bedroom colonial on Grand Island last year with a 30-year fixed rate of 7.25 percent.

He refinanced with Multi-Source Funding recently to a 20-year fixed rate of 5.87 percent. Knocking 9 years of his remaining term only bumped the monthly payment up .

"There's a lot of things that surprised me. I was amazed at the rate we could get on a 20-year loan," said Sander, who works in sales for Jamestown Container.

He was paying extra principal into his 30-year loan each month. Now Sander will put the extra money into mutual funds, dollar cost averaging each month while the stock market is still low.

Customers simply keeping the same term, but getting a lower rate, end up with extra money in their monthly budget.

"We're delivering tax-free raises to people every day when we refinance mortgages. I think that's what is sustaining this economy right now," said Bruce Kiernan, president of American Equity Services, a mortgage broker in Williamsville.

People thinking about refinancing might want to act now, according to mortgage experts.

"This is the time, it's not a matter of trying to get another quarter percent out of this market," said Nicholas L. Buscaglia, administrative vice president of M&T Mortgage Corp.

Mortgage rates have basically followed the stock market trends this year. So if stocks sustain the rally that started late last week, mortgage rates could head higher.

Mortgages actually most closely track the yield on 10-year treasury notes, because banks package mortgages and sell them as securities.

When stocks are falling, investors traditionally rush into bonds. That drives up the price of 10-year bonds, which lowers the interest rate yield the bonds pay. (Bond prices move inversely with the yield they pay.) As a result, as money flows into bonds, mortgage rates tend to fall.

When stocks rise, 10-year bond prices tend to fall, so yields rise to attract more bond buyers. This pushes mortgage rates higher.

This year's low rates have meant great business for local companies in the mortgage industry.

"You're working from the desk at your house, you're working from your car, you're doing a lot of things," said Ronald Michnik, who runs the Orchard Park mortgage brokerage Independent Funding Service.

"We're sending doughnuts to friends, we're sending flowers to try to keep everybody happy. We're all trying to keep our sanity, but it's getting harder."

The mortgage industry runs on a chain of vendors ranging from brokers, to bankers, to appraisers, title agents and attorneys. They've all been busy.

"We generally feel it a week to two weeks after the banks have taken the applications. We've been busy, but our turnaround time is still generally five days. In some parts of the country, it's three weeks," said James Kirchmeyer, president of Kirchmeyer and Associates of West Seneca, one of the region's largest appraisal companies.

Some industry professionals worry about the long-term impact of what has been the mother of all refinancing booms. Michnik wonders how many local residents sitting on 5.5 percent mortgages will move up into a new houses in a couple years.

"The big, big concern I have is, how many people are going to want to buy a new house in 2004 at 7.5 percent, unless they have to buy a new house," said Michnik, who is president of the Western New York Association of Mortgage Brokers.

Related links:

1. US mortgage market - colossus in a world of its own
2. How low will they go?;
3. Serial refinancers ride falling rates again and again