Once upon a time, a mortgage was forever. But no more. Homeowners on average now change mortgages more often than they buy a new car; some do it almost as often as they change the batteries on their smoke alarms.
Of about $3 trillion in mortgage debt on one- to four-family houses around the country, $894 billion, or nearly a third, was written last year. This year that total may top $1 trillion.
The reason is not sales, which are well below their historic peak; rather, it is refinancing. In more settled times, of every four mortgages written, three are on newly purchased houses and the fourth is a refinancing; lately, the majority are refinancings. "It's astounding, it's absolutely amazing," said Frank E. Nothaft, deputy chief economist of the Federal Home Loan Mortgage Corp., known as Freddie Mac. The volume of mortgages has doubled since 1990, he pointed out.
Why?
The world of interest rates has changed faster than almost anyone imagined possible a few years ago, opening up myriad choices not only to people buying homes but also to those who have lived in their homes for years, for whom the blur of paperwork at the closing is now a distant memory, and who thought that all the decisions were behind them. These days holding onto a 3-year-old mortgage simply because it's the one you already have makes about as much sense as holding onto shares of stock simply because you own them.
But as with stocks, the investment choices can be daunting. The menu includes fixed-rate and variable mortgages; 15-year mortgages and 20- or 30-year mortgages; a hybrid of long-term and short-term mortgages that masquerade as 30-year mortgages but require a "balloon" payment in the fifth or seventh year, and no-point mortgages or mortgages with points.
Then there is the issue of pedigree; do you want a mortgage from a bank with a household name, the kind that offers checking accounts and ATM cards, or from a "mortgage bank" that is tucked away in a low-rent office building, but offers a better rate?
Another consideration today is that a homeowner who refinances may no longer believe that the new one is going to be the last.
There are answers to all these questions, but they require a vocabulary slightly larger than the old one of appraisals and escrows, points and indexes. The new words are slightly off-putting -- securitized mortgages, mortgage wholesaling and the shape of the yield curve -- but by no means impossible to understand.
