Photo by Al Behrman
Michael Ja'anini thought he had secured an attractive mortgage rate of 5.75 percent when he bought his East Ridge home nearly eight years ago.
But like a growing number of home owners, Mr. Ja'anini found a much better deal this spring. With mortgage rates hovering at historic lows earlier this month, the East Ridge homeowner replaced his 30-year mortgage with a 15-year loan at 3.99 percent.
"I should save about $57,000 over the term of this new loan," he said. "I'll pay about $60 more a month to pay off the loan in half the time of my old mortgage."
Mortgage rates have dropped this spring to some of the lowest levels on record, spurring some homeowners to capitalize on the interest rate drop to refinance their homes. Rates on 30-year fixed mortgages backed off from yearly lows this week, but still remain historically cheap.
Mortgage finance company Freddie Mac says the average rate rose to 4.75 percent this week, up from 4.72 percent last week. The rate hit 4.71 percent in December, the lowest since Freddie Mac began keeping records in 1971.
The average rate on a 15-year fixed-rate mortgage edged up this week to 4.2 percent, up from its record low of 4.17 percent set last week.
"I've been in this business since 1979, and we're looking at some of the lowest rates in my career," Chattanooga mortgage broker Philip Moye said. "If you have a mortgage loan that exceeds 5.75 percent, you can probably benefit dramatically by refinancing."
Although far behind the wave of home refinancing activity in 2003 or in 1997, when rates also dropped, a majority of loan applicants for many lenders are refinancing existing mortgages, not buying new homes.
Richard Smith, retail manager for American Acceptance Mortgage Inc., said the recent rate drop "has been a nice surprise, particularly since an $8,000 tax credit for first-time homebuyers expired in April.
"I can't imagine rates going much lower," he said.
Naveed Minhas recently bought a house in North Chattanooga with a 5 percent mortgage and is renting it out at a rate sufficient to more than pay the monthly principal and interest payments.
"Home values are down and, with these attractive mortgage rates, it's a good market for investment properties," said Mr. Minhas, who is vice president of development with the Chattanooga Housing Authority.
With the prospect of higher inflation and interest rates, other homeowners with adjustable-rate loans are moving to lock in today's attractive rates.
But lenders aren't being flooded with refinancing applications as they were in previous years when 30-year rates fell below 5 percent.
Mortgage rates have remained below 6 percent for most homebuyers during the past 18 months, and many long-time homeowners previously took advantage of low rates to lock in attractive mortgages in the past.
Home prices also have dipped slightly in most markets over the past two years, limiting the ability of homeowners to tap the equity in their homes by refinancing their mortgages.
"Thank goodness in Chattanooga we haven't had the dramatic depreciation in property values that some markets have had," said Don Oakes, president of Mortgage South in Chattanooga. "But there are more and stricter requirements for loans today, so it's not as easy for everyone to refinance their mortgages."
Greg Petree, owner of Express Mortgage since 1997, said stricter credit, fraud and appraisal requirements have made getting a loan harder for some borrowers.
"Home purchases kind of dropped off like a rock last month after the new home tax credit expired, so it hasn't been as busy as we would have hoped with such low rates," he said.
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