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Photograph by Tsutomu Fujita
Kymberly Bashaw (left), an employee of Union Planters Mortgage in Los Gatos, writes on a board while Sharon Butler works at a computer. Butler says the drop in interest rates has prompted people to refinance their existing mortgages.
Low interest rates provide cheaper money
By Jean Newton
Although some people are sitting on the fence trying to second guess when mortgage rates will hit rock bottom, many others are taking advantage of some of the lowest mortgage rates in decades. Whether it's refinancing or purchasing a home, timing may be everything.
With long-term mortgage rates sticking below 7 percent for the ninth consecutive week, the most recent Freddie Mac Primary Mortgage Market Survey shows 30-year, fixed loans at 6.58 percent; 15-year mortgages at 6.06; and one-year, adjustable-rate mortgages down to 5.26 percent.
"It's a great time to refinance, since some rates are at a 10-year low," said Jimmy Kang, a home mortgage consultant for Wells Fargo Home Mortgage in Burlingame. "Some of my borrowers are having to refinance to pay off stock gains, while others are consolidating their debts and lowering their overall monthly debt payments."
In addition, some of Kang's clients are improving their homes instead of selling because of the drop-off in prices. Others are just getting cash out through refinance loans or home equity loans to have some cash on hand to prepare for the worst. Kang even sees "a rare few who are refinancing to get cash out to make further investments in this great buyer's market right now."
According to a weekly survey by the Mortgage Bankers Association of America, refinance activity is climbing with 74 percent of total loan applications coming in for refinances, up from 66.7 percent the week before. Determining the right time to jump into the loan process is up to each individual, and there is a great deal of debate about whether to lock in a rate or wait until the loan is in progress to do so. Most professionals in the industry are hard-pressed to determine the exact bottom for interest rates, but consulting a mortgage broker or lender who can evaluate the individual's situation is usually the best course.
Sharon Butler of Union Planters Mortgage in Los Gatos said many people are pursuing loans with low interest rates. She is finding one of the most popular loans is a fixed rate, stated income, jumbo loan. Using "stated income" allows the client to get a loan without having to document income.
"These interest rates are as low as we've seen them in ages," said Butler. "Often people have taken out a more creative loan that allowed them to get into the house they wanted, especially in areas like Los Gatos and Saratoga. Now they are refinancing with a fixed interest rate for security."
While some people are looking to consolidate a first and second mortgage, others are questioning whether or not to move from a 30-year, fixed rate loan to a 15-year, fixed rate loan. Butler said she counsels her clients by asking them, "What if?" If the difference between the monthly payments is much higher, she recommends keeping a 30-year mortgage and paying additional interest each month. Since every case is different, however, consulting with a professional is still the best advice.
"What I'm extremely happy to see with these low interest rates is that last year a lot of buyers came in with low down payments and they couldn't compete in the market. Now, they are coming back into the market and it's really exciting," said Butler.
According to Realtor John W. King of Allhouse King Realty in Palo Alto, teachers and others previously priced out of the market are now in the running again. He cites low interest rates, the flexibility of lenders and a deline in home prices--so people can negotiate a price that fits their ability to pay--as key factors in opening up the market. "There are plenty of buyers in this market who are entrenched in normal jobs in this area who are dying to buy a home, and now is the time that they can make it happen,'" King said.
Judy Jarvis Ellis with Alain Pinel Realtors in Palo Alto agreed that lower interest rates are enabling people to re-enter the market, especially those who couldn't afford the prices in last year's furor. However, she cautions her clients to discuss with their lenders the advantages and disadvantages of various types of loans, particularly the loans where an adjustable rate is a factor.
"Right now, the five-year, fixed loans are at very attractive rates. However, the indications are our economy will start rebounding next year, and if that trend increases over the next several years, inflation could once again become a factor driving interest rates up. Then, someone coming out of a five-year, fixed loan could be looking at an adjustable loan around 11 or 12 percent. The best advice always is to contact the local mortgage experts and review several scenarios," said Ellis.
An easy way to start the process is to check out mortgage interest rates online. Both www.eloan.com and www.bankrate.com provide information on mortgages and interest rates. Visitors can fill out a form and check out interest rates based on their personal situation to see if refinancing or purchasing is a viable option. Visitors to the website can even apply for a loan online, although talking with a local banker or mortgage agent who can provide personalized service is another option.
One such banker manager, Ray Molina of Cal Fed in Los Altos, always goes the extra mile to provide friendly, personalized service to his clients. Molina, who has been known to stop in and help fill out forms for his clients, said he believes that now is also the time to take advantage of the low interest rates with either a home equity loan or a business line of credit. His philosophy is that it is better to apply for a loan now even if there isn't an immediate need, just to have it in place in case there is a need at a later date. Cal Fed is currently offering business express loans and lines of credit featuring a streamlined application process.
Whether refinancing, taking out a business credit line or home equity loan, or entering the market for the first time, there is no substitute for good advice. To find a mortgage broker or lender who can help decipher whether the time is right for a new loan, check out the Silicon Valley Association of Realtors website at www.siliconvalley-realtors.org to find an affiliate member who can help.
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Cupertino, California Since 1947
