Now May Be the Time to Refinance
Some savvy Wall Street money-market experts are betting on you this spring. They say you and thousands of other American homeowners are about to pay off your mortgages, en masse, and get new ones.</br></br>They say the conditions couldn't be more stimulating:Interest rates have hit what many economists believe will be rock bottom for the year and stand at their lowest level since 1978. Fixed-rate, long-term mortgages at 8 1/2 percent are available in many local markets. Adjustables are going for 1 1/2 to 2 percentage points less. Millions of homeowners are sitting with loans carrying moderate rates in the 10 1/2-to-12-percent range, all of them potential candidates for 1987's coming refinancing wave. People whose mortgages seemed too low to refinance last March-when fixed rates dipped to 10 percent-are poised to take the plunge, profitably. Millions of other Americans, far more than you'd guess, continue to live with home loans above 13 percent. Estimates from one Wall Street firm, Drexel Burnham Lambert, suggest there are well in excess of $20 billion worth of FHA and VA mortgages outstanding with 13 percent to 15 percent interest rates. Since FHA and VA represent a minority of the mortgage market, and Drexel was counting only loans that have been pooled into mortgage securities (Ginnie Maes), the true national total of high-coupon loans left untouched is enormous. Low-plateau rates this spring will trigger more than just refinancings. They'll also encourage more move-up purchases, and higher numbers of employment-related relocation moves than last spring, when rates turned up suddenly.</br></br>David Askin, first vice-president of Drexel Burnham Lambert and a top mortgage-market analyst, minces no words about his forecast: "The fence-sitters and bottom-fishers are going to get off their duffs this spring. The people who didn't make a slam dunk {by refinancing} when rates came down {early last spring} aren't going to let the opportunity slip by this time."</br></br>Economist Richard Peach of the Mortgage Bankers Association of America agrees that the moment is ripe. Peach just bought a new house with an 8 1/2 percent, 30-year mortgage, so he may be biased. But, he says, "Who wouldn't be attracted by low-cost financing like that? The whole psychology of getting mortgage money when it's cheapest" will be at work the next two months.</br></br>How does all this affect you? Are you a potential contender in the refinancing-resale arena of early 1987? Bear in mind key guidelines for sensible refinancing: You should be able to get at least a 2 percentage-point rate drop out of the deal. Askin's prediction that the heaviest refinancing this spring will come from the ranks of the 11 percent to 12 percent mortgage holders is probably accurate. If you stayed on the sidelines last year when the refinancing market was at 10, you may want to jump in now that the market is under 9 percent. You should be able to recoup all the attendant costs of refinancing-and begin truly saving money-in no more than two years. Count up all the fees you'll have to fork over in cash, such as closing and escrow costs, local taxes and lender's "points" (interest in advance on the new loan). Divide the total by 24, spreading the cost over two years of monthly checks.