LOS ANGELES -- A refinancing frenzy is occurring across the country, fueled not only by a drop in rates, but by an eagerness among banks to provide refinancing in the wake of the housing slowdown.
Like the Browns, many homeowners are refinancing in order to avoid risky adjustable rate mortgages. Others want to tap the equity in their home by refinancing for more than their original loan amount.
But interest rates have been inching upward in recent weeks and experts say the benefits of refinancing for the majority of mortgage holders may soon be wiped out.
The average interest rate on a 30-year fixed-rate mortgage has risen from 9.25 percent in mid-February to 9.52 percent for the week ended March 29, according to the Federal Home Loan Mortgage Corp., Freddie Mac.
"Borrowers should get in now if they want the lowest rate," said Paul Havemann, vice president of HSH Associates, a mortgage research firm in Butler, N.J.
He pointed out that in 1987, when mortgage rates were last as low as they are now, the turnaround happened very quickly, with
rates increasing as much as 3/4 percent in one week.
For the moment, though, having interest rates at any level below 10 percent is "certainly doing great things for the refinance business," said John Fernie, senior vice president of First Interstate Bank Residential Mortgage division, whose refinancings are up about 15 percent since the first of the year.
About a third of all home loan applications nationwide now are coming from refinancing, compared with 15 percent at the end of last year, said Thomas Holloway, senior economist at the Mortgage Bankers Association.
Actually, mortgage interest rates in the United States had been falling since late November, as the demand for credit dropped when the economy slipped into a recession.
Mortgage holders with rates between 10 percent and 11 percent have become the first to cash in on the rate decline by refinancing, industry experts say.
Exchanging an 11 percent interest rate for 9.5 percent would save borrowers $112 in monthly payments on a $100,000 mortgage, said Sidney Lenz, executive vice president of Countrywide Funding Corp. in Pasadena, Calif. a nationwide mortgage lender.
About 35 percent of the company's business is now in refinancings, compared with 15 percent six months ago, Mr. Lenz said.
Besides the drop in rates, refinancings also are popular because 1991 is the first year interest on consumer debt can't be deducted from taxes. By borrowing more money than needed to pay off the old mortgage, there is the opportunity to pay off consumer debt. Also, mortgage interest can be deducted by up to $100,000 over the original loan amount.