Should You Refinance Your Home? Homeowners Rush to Redo Loans

A freak drop in mortgage interest rates has fueled a “boomlet” in home loan refinancing in the past few weeks, lenders and mortgage brokers say.

The dip created an unexpected opportunity for borrowers who missed out on the last refinance boom, lowering monthly loan payments by $100 to $200 for some borrowers.

Some lenders say they’re seeing refinance activity jump anywhere from 20 percent to 60 percent.

Call center employees put in extra hours last week at Foothill Ranch-based loanDepot to keep up with the demand.

Oct. 15 was one of the biggest days in loanDepot’s history for refinance volume, company President and Chief Operating Officer David Norris said in an email to co-workers.

“Improvements in home equity and the drop in rates have opened refinance up to a whole new group of borrowers who can benefit from what’s going on now in the market,” Norris said.

Shabi Asghar, president of Commerce Mortgage Wholesale in Irvine, said last week’s dip in mortgage rates spiked demand by 20 percent to 33 percent at his company. Al Hensling, president and CEO of United American Mortgage in Irvine, said “refi” applications jumped 35 percent there in recent days.

California Mortgage Banker Association board member Brandon Haefele, who runs Sacramento-based Catalyst Mortgage, said the drop in rates can be a boon to people who bought homes earlier this year using Federal Housing Administration loans.

Those borrowers typically pay 1.35 percent on top of their interest rate for private mortgage insurance, creating an effective rate of almost 5.4 percent, he said. Many of them now can get conventional financing for up to 95 percent of their home’s value and shed the mortgage insurance.

“Their payments potentially can go down a couple hundred bucks,” Haefele said.

This was supposed to be the year that 30-year mortgage rates would rise above 5 percent, which would still be a bargain by historical standards. Instead, rates have been edging gradually downward since January.

This month’s rate drop is one positive effect of the stock market turmoil of the past few weeks, fueled by global economic jitters. Investors flocked to buy U.S. Treasury bonds, driving down rates.

Since home loans typically track the 10-year Treasuries, mortgage rates fell to their lowest level in 16 months.

Freddie Mac’s weekly survey pegged the average rate for a fixed, 30-year mortgage at 3.97 percent in the week ending Thursday – down from a monthly average of 4.4 percent in January. That translates into a $112 drop in monthly payments for a 30-year, fixed-rate loan of $417,000. Refinance application volume hit a four-month high last week, according to the Mortgage Bankers Association.

It was the first time in 16 months that the 30-year average was below 4 percent – an important psychological level, according to Mortgage Bankers Association Chief Economist Mike Fratantoni. People who don’t normally watch the markets day to day are likely to take notice and look into refinancing their loans, he said.

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House Prices Forecast to Rise Just 5.2%

Next year will be better for home buyers – especially for renters trying to purchase a home – as galloping house prices slow to a walk, the California Association of Realtors chief economist said. 

Delivering her annual housing forecast, Realtor economist Leslie Appleton-Young predicted that the median price of a California house will rise a modest 5.2 percent in 2015. 

Sales are expected to climb 5.8 percent, after a drop of 8.2 percent this year. 

Considering that the number able to afford the typical home has dropped to 36 percent of California households this year (and to 20 percent of Orange County households), the slowdown in home-price gains could create opportunities for entry-level buyers, Appleton-Young said. 

“You’ve got investors leaving (the market), you’ve got moderation in prices, you’ve got more inventory and you’ve got a little bit more hospitable lending environment,” Appleton-Young said in a telephone conference call with reporters. 

“It might be a good pause for all the people who got a little bit exhausted by all the multiple offers and competition in the last couple of years.” 

In other news, Irvine-based CoreLogic reported that Orange County home prices were up 5.8 percent in the year ending in August, the smallest appreciation rate since late 2012. 

Highlights of the Realtor forecast include: 

• Interest rates for the traditional 30-year fixed-rate mortgage will rise only slightly to 4.5 percent, compared to this year’s average of 4.3 percent. 

• Only half of California houses sold this year got multiple offers, compared to seven out of 10 in 2013. 

• Distressed sales (foreclosures and sales “short” of the amount needed to pay off the mortgage) are down to 10 percent of all California transactions, while normal “equity sales” accounted for 90 percent of all deals. In Orange County, equity sales account for 95 percent of all deals. 

• Investors account for 15 percent of all California sales this year, down from 19 percent in 2013. 

• The median price of an existing Orange County house was up 5.2 percent year-over-year as of August, to $699,430. That’s a 58 percent increase from house prices at the bottom of the recession in January 2009. 

• Orange County house sales were down 13.2 percent as of August. 

“We are transitioning, obviously, into a slower price appreciation environment,” Appleton-Young said. “I don’t think it’s out of the question that within two years or so we could actually see some declines, some retreats, in terms of prices.”

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