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.