The second mortgage refinance boom in less than a year includes more people converting their 30-year loans to 15- or 20-year terms, a move some say indicates people see their houses as better investments than anything else available right now.
With interest rates for borrowers lingering near historic lows, mortgage brokers and banks are swamped with refinance activity that matches the avalanche of applications by homeowners last fall.
Only this time, more are choosing to shorten the payback period on the loan, which allows equity to build faster in what for most people is their No. 1 investment. That may be wise, particularly at a time when stock market returns are in the red and savings rates are scrawny. Home prices, meanwhile, have appreciated. Through March of this year, the state’s median home price was up nearly 4%, and prices had increased nearly 8% in Milwaukee County and more than 19% in Ozaukee County.
“I think, partly, people are looking at the stock market and saying, ‘I don’t want to put my money back in the stock market,’ and so it makes sense to pay off your loan faster now than it did before,” said John Matthews of Mortgage Consultants Inc. in Brookfield.
Steve LaDue, president of Affiliated Mortgage & Financial Corp. in Wauwatosa, said one stock investor who is a home refinance customer told him, “I’m investing money in the investment I have control over.”
At Marshall & Ilsley Corp., 15-year fixed-rate mortgages comprises 35% of the bank’s mortgages in the current boom — up from 28% during last fall’s mortgage and refinancing blitz, said Ron Cockle, M&I;’s mortgage sales manager for Wisconsin.
Rates still among lowest
Today’s rates — still among the lowest since the 1960s — make it easier for people to convert from a 30-year fixed-rate loan to a 15- or 20-year mortgage and still be able to handle the payments. Freddie Mac, a buyer of mortgages in the secondary market, reported last week that 30-year fixed-rate mortgages averaged 6.22% with 0.7 points, and 15-year fixed-rate mortgages averaged 5.64% with 0.7 points.
(Milwaukee home buyers typically avoid paying upfront points to lenders, preferring instead to pay a little higher interest rate.)
But for those who find the rise in monthly payments too drastic when the 30-year term is cut in half, lenders are offering 20-year terms.
“The 20-year fixed kind of moves in that direction but isn’t quite as difficult to manage relative to the payment,” said Brian Wickert, president and managing owner of Accunetmortgage.com in Butler.
For example, Wickert said, monthly principal and interest payments on a 0,000 mortgage paid back over 15 years at 5.75% would be ,246, compared with ,085 for a 20-year term at 6.125%.
“We’re seeing more term reduction,” said John Stearns, president of Ideal Financial Services Corp. in Brookfield. “We’re seeing more 20- and 25-year (refinanced mortgages) right now. People who had 30 for maybe one or three years are going down to 20.”
Refinancing won’t stop soon
Some lenders say they also are seeing more interest by consumers in 5-year adjustable rate mortgages, which have been going for rates of 5.5% or less. “People who have a little larger loan balance are drawn to that because another half-percent or three-quarters of a percent in rate savings is significant,” Wickert said.
Some people even are defying Wisconsin tradition and paying upfront points to buy down the already low interest rates to a still more attractive level, said Steve Kaphingst of RCK Mortgage in Germantown. “They really can lock in at some very low interest rates,” said Kaphingst, who is president of the Wisconsin Association of Mortgage Brokers.
Refinancing represented about 72% of all mortgage applications in the week ending Aug. 23, according to the Mortgage Brokers Association of America.The current wave of refinancing, which gained steam in mid-July when average 30-year fixed rates dipped below 6.5% and 15-year rates slid below 6%, doesn’t appear headed to a conclusion soon, lenders say.
Mortgage rates typically move in the direction of yields on 10-year Treasury notes, which have been going down as investors turn to the safety of bonds in the uncertain economy.
Sixty percent of the more than 100 banking and mortgage experts surveyed last week by Bankrate.com predicted interest rates would remain relatively unchanged for the next 30 to 45 days. Twenty percent said they would go down, while 20% said they would go up in that period.
“I see rates holding fairly steady through the end of the year,” M&I;’s Cockle said. “I am speculating that rates will begin to increase, although not that significantly, in 2003.”
It may be a while before the pace slows at mortgage offices.
“The processing staff is coming in at 7 in the morning and leaving at 1 or 2 in the morning. Loan officers are working from 6 in the morning till midnight, and it’s just amazing,” LaDue said.
35% Proportion of 15-year mortgages among Marshall & Ilsley’s mortgages financed recently.
28% Proportion that were 15-year mortgages in last fall’s refinancing boom.