If you refinanced your mortgage in the early 2000s, you undoubtedly felt good knowing that you had taken advantage of some of the lowest rates in years. In those days, a 5 percent, 15-year mortgage seemed like a bargain.
But when the financial crisis of 2008 sent the economy into a tailspin, mortgage rates slid to new lows. Five years after the crash, the nation’s housing market is showing signs of recovery, and rock-bottom interest rates have spawned another refinancing boom.
American taxpayers took a hit in the pocketbook when higher payroll taxes went into effect on Jan. 1. But homeowners who have refinanced their mortgages since then are saving some serious cash.
Janice Laye of Gardiner, a special assistant to the superintendent of Yellowstone National Park, expects to save real money by refinancing at today’s low rates.
“I paid 4.6 percent when I refinanced the last time, and I thought it was pretty good, but then I decided to find out if I could do better,” Laye said. Her new rate on a 15-year, fixed-rate mortgage is 2.88 percent, and Laye said her payment will drop by about $300 per month.
The credit union where she had previously refinanced her home loan no longer lends money in Montana, so a friend referred her to Angel Davis-Viren, broker-owner of Keystone Mortgage Co. in Billings. They completed the paperwork without ever meeting face to face.
Ray Scozzari, manager of Denny Menholt Chevrolet, was looking to do some improvements on his house, so he tapped into his home equity and still managed to lower his payment after refinancing a 4 percent mortgage to a new rate of 2.7 percent for 15 years.
Scozzari is pleased with his new rate, although he’s still waiting to get contractors lined up for the remodeling projects.
“Everybody is busier than a one-armed paper hanger,” he said.
Likewise, Brandon Mobley said he saved $400 per month after refinancing his home on Garnet Avenue.
Davis-Viren said many people who refinance are looking to lower their house payment. But others have a different strategy.
“Some people choose to keep the same payment, but they can pay off the loan a lot sooner,” she said.
Dana Song of Valley Federal Credit Union said customers are becoming increasingly motivated about the advantages of refinancing, following the notion that today’s low interest rates might not last.
“People are saying they think they had better move on this,” Song said. “They’re anticipating rates to be low this year, but they don’t know what will happen next year.”
Steve Bruggemann, chief administrative officer for Valley Federal Credit Union, said a recent promotion that offered refinancing with closing costs was a big success.
He said the refinancing boom is a product of the low interest rate environment. Another contributing factor is that housing sales might account for a bigger percentage of the lending business, because inventory is fairly low in the Billings area.
Song said about 60 percent of her customers are looking to refinance. But lending has also gotten more expensive since April 1, when new fees charged by the Federal Housing Administration went into effect, she said.
Mortgages backed by the FHA allow smaller down payments and have less stringent credit requirements. But the agency announced in February that it must raise two kinds of fees in order to rebuild its reserves, which plummeted when home foreclosures mounted in the wake of the housing crisis.
The FHA increased its annual mortgage insurance premium by 0.10 of a percentage point for loans under $625,500. The premium now costs 1.25 percent of the loan amount, up from 1.15 percent.
The FHA also has raised a fee known as the upfront mortgage premium by 0.75 of a percentage point, bringing the premium to 1.75 percent of the loan amount.
In late March, a 30-year fixed-rate mortgage averaged 3.4 percent in Montana, and a 15-year fixed-rate mortgage averaged 2.62 percent. In general, today’s low mortgage rates provide an incentive for people who are looking to buy a home. But other factors come into play. Buyers need to be able to come up with the down payment. Those who have a poor credit score will likely end up paying a higher mortgage rate, or they might not qualify for a loan, experts say.
Jim Walker, president of Western Security bank, said about 65 percent of the bank’s real estate business has been refinancing. Two years ago, refinancing made up about 90 percent of the bank’s business.
“Purchases are very strong right now. The down side is that with limited inventory, there aren’t as many houses on the market,” Walker said.