The burning desire to redo mortgages had already been high since the first of the year, as falling interest rates moved them to revise their repayment terms — downward. Now, the Federal Reserve on March 3rd announced an emergency interest rate cut designed to curb the economic damage from the burgeoning coronavirus. It was the first emergency cut by the Fed since the 2008 financial crisis. The central bank made a similar move after the 9/11 terror attacks.
“If you’re trying to look for a solitary positive aspect of this crisis, the decline in mortgage interest rates is probably one of the few standouts,” said Mark Hamrick, senior economic analyst for Bankrate in Washington.
The action only intensified the consumer phone traffic for South Florida banks and credit unions, executives said this week.
“Last month was our best month in three years, and this month should be even better,” said Doug Leever, mortgage sales manager at Tropical Financial Credit Union in Miramar. “This is a great time to buy or refinance or get a home equity loan. The refinance business is absolutely booming.”
In Coral Gables, John O’Rourke III, vice president of private banking and wealth adviser at First American Bank, said he helped a high-end client obtain a loan so he could move from one home to another. Before the Fed’s action, the rate was 3.75%. Afterward, 3% became the charm.
“In the latter part of last year, who would have thought you were looking at a 3% interest rate?” O’Rourke asked. He told the client: “The stars had aligned.”
By week’s end, the average rate on a 30-year fixed mortgage had fallen to 3.29%, according to the finance giant Freddie Mac. For a 15-year term, it dipped to 2.79%.
“These rates are historically low rates,” Leever said. “You can afford a more expensive home with low rates.”
According to the Mortgage Bankers Association in Washington, the 30-year fixed mortgage was at its lowest level in more than 7 years. Mortgage rates track the yields of 10-year Treasuries, which slipped below 1% for the first time ever after the Fed took its action.
“More downward action could well be on the way amidst increasing concerns regarding the economic impact from the spread of the coronavirus, as well as the tremendous financial market volatility,” the Mortgage Association said in a statement.
“Refinance demand jumped as a result, with conventional refinance applications increasing more than 30%,” said Mike Fratantoni, the Association’s chief economist. “Given the further drop in Treasury rates this week, we expect refinance activity will increase even more until fears subside and rates stabilize.”
The decision to refinance depends on an owner’s personal financial situation and future living plans. How long do you plan to stay in the home? How much do you owe? Will a new deal bring the savings you expect? If you expect to be in the home for only two or three more years, it’s probably not worth the effort.
“But if they have a longer term and you can save some money and recoup the cost of the refinancing it might be worthwhile,” said Craig Garcia, president of Capital Partners Mortgage, the mortgage affiliate of The Keyes Company.
Overall, it’s smart for owners to at least review their current financial situation and consider changes that can improve the future, financial advisers say. For many, the home is the biggest investment an individual will ever make.
“It’s wise to look at the debt that you have and look at refinance opportunities on that front,” said Mason Williams, managing director and chief investment officer of Coral Gables Trust Co. “I expect home refinancings to spike higher in the coming couple of months, and it’s definitely a time to buy a house and locking in the rate is going to be wise to do.”
Home Equity Loan, Anyone?
Borrowing against the equity built up in the home is also a goal of many owners.
“We can loan up to 90% of a person’s value of the home minus the first mortgage balance,” said Leever of Tropical. “We can go up to that depending on the owners’ credit.”
Tropical doesn’t charge any closing costs for loans of up to $250,000, nor does it charge appraisal or title fees or prepayment penalties.
“Along with the refinance boom, low rates help to fuel home sales and home construction,” Hamrick said “That all feeds into furniture purchases and home improvements.”
But there is a dark side to rate downdraft.
“The not so elegant part of it is how it affects savers,” Hamrick said.
While borrowers pay less, savers will get less for their deposits.
“Savers are going to get punished.” Mason said.