The Federal Reserve Bank’s pushing $400 billion into long-term treasuries dropped mortgage interest rates to historic lows and sparked a wave of refinancings in the Baton Rouge area.
Ron Kyle, a Baton Rouge resident and builder, said he took advantage of the current rates to combine his first and second mortgages.
“Our real reason that we’re refinancing is because we had a second mortgage that was coming due,” Kyle said.
The second, interest-only mortgage was at 2.25 percent interest for five years, Kyle said. But the entire amount of the mortgage would have been due in December.
The interest rate on the first mortgage was 6.875 percent, Kyle said.
Kyle refinanced both at 4.75 percent but said he’s not sure if he actually lowered his monthly note, or if it was basically a wash.
“To me that wasn’t really the objective of my refinance. ... It was more about getting it all fixed on a long-term deal,” Kyle said.
Kenneth Hodges, managing partner at Assurance Financial Group of Baton Rouge, said refinancing is very active now, although overall activity for the year is down in comparison to 2010.
“We’re seeing 15-year rates in the low 3s (3 percent) and 30-year rates in the upper 3s,” Hodges said
Hodges said refinancing activity surged when rates fell below 5 percent a year ago and then more recently to 4 percent.
“That’s nice for mortgage lenders and banks because the volume’s been off this year because of the purchase market not being very hot,” Hodges said. “The purchase market’s been stagnant for the last couple of years, and we’re anticipating it to be stagnant again next year.”
Lenders say the cost for refinancing is around 2 percent of the loan amount, so it’s important that consumers make sure their savings offset closing costs.
Pam Weatherly said this is the second time she and her husband have refinanced their home since buying it around 10 years ago.
The low rates were the main reason this time around; their new mortgage carries a 3.25 percent interest rate, she said. The mortgage is for the same length of time as their previous mortgage and also cuts around $100 a month off their payment.
Kathy Parker, senior lender at Bank of Zachary, said the refinancing she sees now differs from the activity the bank saw during the last big drop in interest rates.
“A lot of people are trying to get out from under first and second mortgages or out from under PMI (private mortgage insurance) and those kinds of things,” Parker said.
The big problem for consumers now is that their homes may not appraise for enough to meet the federal government guidelines to refinance, Parker said.
For example, the cost of construction may be greater than the market value if there have been foreclosures in the neighborhood, Parker said. The reduced demand for new homes is also keeping prices down.
“People are really concerned about the future. Therefore, they’re not necessarily moving,” Parker said. “They may refinance, but they’re not going to move, and that is causing kind of a drag on demand.”
Other criteria, such as better credit scores, have also tightened, Parker said.
Still, for those who qualify, the mortgage rates — around 3.875 percent for a 30-year mortgage — are “unbelievable,” Parker said.
Sharon Jenkins, mortgage production manager at Regions Bank, said about 65 percent of loan activity is refinancing.
During the first half of the year, most of the bank’s activity involved new purchases, Jenkins said. But during the last quarter, refinancing activity increased.
Last year, refinancing made up the vast majority of activity, with as much as 75 percent or 80 percent of loans for mortgage refinancing, Jenkins said.
The refinancings are a mixture of consumers who are refinancing for the first time and others who are re-refinancing, Jenkins said. The loan amounts range from $70,000 on up.