Homeowners flood mortgage brokers as interest rates hit 35-year low

You may have been hearing this all year from high-pressure salespeople, but now it's really true: It's a great time to refinance your home.

In fact, it may be a once-in-a-lifetime opportunity. Mortgage rates have fallen so low that they are skirting levels not seen since the mid-1960s.

Freddie Mac, the quasi-governmental mortgage banker, reported yesterday that the average interest on all 30-year, fixed-rate mortgages dipped to 6.64 percent this week from 6.72 percent the week before. The average for 15-year, fixed-rate mortgages slipped to 6.11 percent from 6.23 percent. As recently as 17 months ago, the average 30-year rate stood as high as 8.82 percent.

The plunge certainly hasn't been overlooked by the nation's homeowners. They have been flocking to mortgage brokers in record numbers, seeking to refinance.

The Mortgage Bankers Association reports that the number of applications last week was running 129 percent ahead of the year-earlier week.

Keith Gumbinger, vice president of HSH Associates, a Butler, N.J., mortgage-tracking service, says refinancings are outnumbering purchase loans by nearly 2 to 1. When rates are stable, he says, refinancings account for only about one-fifth of mortgage loans.

Refinancings allow homeowners not only to reduce their monthly payments, but also -- thanks largely to rising property values -- to pull sizable chunks of cash equity out of their homes.

Judy Hiserman, a Pacific Bell employee, recently slashed the interest rate on her Bernal Heights home to 6.5 percent from 7.6 percent, saving herself 0 per month in payments. The deal allowed her to pocket ,000 in cash, which she will use to pay off her credit-card debt.

"I feel fortunate to be living in San Francisco at a time like this," she says.

Although rates have been declining steadily, it doesn't necessarily pay to refinance often. That's because each time you refinance you get hit by substantial closing costs -- mortgage points, appraisal fees, title insurance and the like.

Robert Kaplan, a psychologist, signed papers this week for a commercial refinancing of a house on 18th Avenue in San Francisco that he rents to his daughter. He reduced his rate to 7.375 percent from 8.25 percent, and his monthly payment to ,500 from ,740.

He could have gotten a 7.125 percent loan, he says, but would have had to pay several thousand dollars in mortgage points. The loan he chose was point-free, but even so the closing costs came to ,000.

Rita Abrams, a Mill Valley songwriter, refinanced her house three months ago, reducing her interest rate to 7.375 percent from 8.5 percent. She saved herself about 0 per month in payments and withdrew a "modest" amount of cash.

Now that rates have fallen a half-point lower, she is watching the mortgage market again. But she figures that closing costs will restrain her from rushing in anytime soon.

The abnormally large amount of refinancing activity has put a strain on the mortgage-lending system.

"Business already was crazy, and it is getting more so," says George Tribble, owner of Jetstream Mortgage in Oakland.

Steven Oliphant, a broker with First Capital Group in San Rafael, says: "The pressure has been felt by every single person connected to the business. Mortgage brokers, lenders, appraisers, title and escrow people all are under a tremendous amount of stress."

But they love it, he adds: "It's a good time for anyone in the lending business."

Home appraisers, who generally used to be available on two days' notice, now sometimes demand a three-week lead time. Some are so busy that they are rejecting requests for their services.

"My turnaround time is pretty long now," says Daly City appraiser Mary Jean Smith. "It's first-come, first-served."

Homeowners who are thinking about refinancing have to ask themselves the big question: Will rates go lower still?

With the Federal Reserve in an unbridled rate-cutting mode, would it pay to sit tight for a while before filing that refinancing application?

Certainly the conditions that support lower rates -- a weak economy and low inflation -- are very much with us. If the nation were to find itself in a prolonged recession, today's low mortgage rates could seem high just a few months from now.

But predicting interest rates has always been a frustrating exercise, warns HSH's Gumbinger. "Virtually every sharp downdraft has been followed by a sharp updraft," he observes.

The government's plan to inject the economy with a healthy dose of fiscal stimulus could spark the updraft this time, he says.

Related links:

1. Higher refi fees ahead
2. Refinancing to pay off bills doesn't get rid of the debt, it just moves it around
3. What you should consider before refinancing loan