ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Friday, February 23, 1996 TAG: 9602230082
SECTION: BUSINESS PAGE: A-5 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: JOHN D. McCLAIN ASSOCIATED PRESS
MODERATE INTEREST RATES are leading to the decade's second boom in applications for loans to repay existing mortgages.
Homeowners are taking advantage of moderate interest rates to create the decade's second rush to refinance mortgages.
Frank Nothaft, deputy chief economist for the Federal Home Loan Mortgage Corp., said refinance activity is approaching the levels seen during the 1992-93 boom.
``Our survey of mortgage lenders indicated that 46 percent of mortgage applications in January were to refinance existing loans,'' he said. ``That is the highest level since March 1994, the tail end of the last refinance boom.''
When the 1992-93 boom peaked in October 1993, refinancing made up nearly 75 percent of mortgage activity.
Nothaft said his company expects the cost of 30-year fixed-rate mortgages to average about 7.3 percent in 1996.
Refinance activity dropped to just 10 percent of the mortgage market in January 1995 as rising mortgage rates made refinancing less desirable.
After sinking to a 25-year low of 6.74 percent in October 1993, 30-year fixed-rate mortgages shot up to 9.25 percent at the end of 1994, according to weekly surveys by the company, known as Freddie Mac.
The monthly payment on a $100,000 mortgage with a 7 percent interest rate is $665; the payment on the same loan with a 9 percent rate is $805 - a difference of $140.
As the economy slowed last year, long-term interest rates began falling sharply. But Thursday, Freddie Mac reported that the 30-year loans averaged 7.32 percent this week, up from 6.94 percent last week.
The company, which buys mortgages from lenders to package and resell them to investors, also said lenders were asking an average initial rate of 5.34 percent on one-year adjustable-rate mortgages, up from 5.19 percent last week.
Fifteen-year mortgages, a popular option for refinancing, averaged 6.77 percent, up from 6.44 percent. The rates do not include add-on fees known as points.
Nothaft said Freddie Mac expects the refinancing share of the mortgage market to remain high during the current quarter before giving way to purchase applications as the spring home-buying season arrives.
Vassilis Lekkas, Freddie Mac's senior economist, said 68 percent of homeowners refinancing 30-year fixed-rate mortgages in 1995 chose new 30-year loans, up sharply from 54 percent in 1994. That ratio jumped to 77 percent in the final three months of last year.
Just 2 percent of borrowers with 30-year mortgages chose adjustable-rate loans when refinancing, down from 9 percent in 1994, he continued. Demand for 15-year mortgages was virtually unchanged at 25 percent.
Nothaft also said Freddie Mac expects continued low rates to boost sales of new and existing homes this year. Sales weakened in the final months of 1995 as consumer worries over sluggish job and income growth offset falling financing costs.
What Roanoke Valley lenders say
Michael Hincker of National City Mortgage Co., "We've been doing a pretty significant amount of home refinancings. About 50 percent of (our) total home office business is refinancings. At the local office, it's much smaller, about 30 percent.
"There's a lot of rate shopping going on. It's a good time to refinance."
Carol Divers of Crestar Mortgage Corp."Refinancings have definitely picked up. As long as rates stay down low, we'll see more and more refinancings. People should refinance if their mortgage rate is 9 percent or higher or if they want to change from a 30-year to a 15-year loan."
Matt O'Bryan of Mortgage Investment Corp. "Absolutely, people are starting to refinance. People are calling about rates. The 15-year mortgage is popular. It's beneficial to refinance for a 15-year mortgage at 6.5 percent. Usually the payments are not that much higher, depending on the old interest rate."
LENGTH: Medium: 81 linesby CNB