Low mortgage rates are spurring a surge in refinancings and new loans nationally, and to some extent, in Western New York.
As rates have fallen to 5 percent or even lower for some loans, consumers are eagerly calling their lenders to see about reducing the interest rate and term on mortgages taken out as recently as a year ago.
While the rates they had -- often in the 6 percent range -- were already low by historic standards, the opportunity to push it more than a point lower and save potentially hundreds of dollars a month has been too good for some to pass up.
"It's great. January and February -- both were very busy," said Jeanne L. Wiles, co-owner of LW Integrity Funding in Tonawanda, which is moving to Williamsville this month. "It feels like spring has sprung."
Most borrowers are focused on improving their financial stability by lowering their monthly payments to restore cash flow. Loans are typically conventional, with little cash-out refinancing.
"We're experiencing rates that are at record lows," said Nick Buscaglia, group vice president and regional residential mortgage manager for M&T Mortgage, where volume doubled in January from a year ago and the pace so far this year is up as much as four-fold from the typical early months of the year. "This is a significant opportunity to save a lot of money."
But in some cases, borrowers are also looking to shorten the term of their loan from 30 years to 15 years, if they are far enough along and able to afford it. That can often mean a higher monthly payment, but with interest rates on 15-year loans being even lower than on 30-year loans, it may not add up to that much of a difference.
"It's the same payment or lower, because of the rate difference, and they're knocking the time off," said James Riley, a senior loan officer at Alexis Funding.
Riley has one customer who is going from a 6.25 percent, 30-year loan to a 4.5 percent 15-year loan, on $220,000. The original loan was just over a year old, but Riley said the customer is saving $110,000 in interest. And the monthly payment is only $30 more.
"It's busier than in a while," said Riley, who has had 15 refinances and three purchase loans since Jan. 1. "Usually this is our slow season, but it's been quite busy."
Christopher Prezioso and his wife, Kelly, built a house a year ago in Sanborn in Niagara County, to be close to where he teaches physical education and coaches four sports in the Starpoint Central School District. They got a 6.5 percent fixed-rate loan for $173,000, for 30 years, and didn't expect to lower that anytime soon.
Then he got a surprise call recently from Riley, his broker from the earlier mortgage, who locked him into a 5 percent rate for a new loan, cutting his monthly payment from $1,053 to $928, and saving about $70,000 in interest over the life of the loan. Riley even rolled in the closing costs for the family.
Now the Preziosos hope to plow the savings into the house, finishing an extra room, building a deck, completing the end of the driveway, putting in landscaping, putting up curtains and finishing the basement.
"It's going to help us a ton, because we've got a million things to do around here," said Prezioso, 31, who also has a 10-month-old daughter.
The Mortgage Bankers Association, a national trade group that tracks lending activity, said last week that its index of applications to buy a home or refinance an existing loan soared 46 percent in the week ended Feb. 13. In particular, its refinancing index leaped 64 percent, while purchase activity was up 9.1 percent. Refinance applicants represented 74 percent of the total, up from 66 percent a week earlier.
According to the trade group, the average rate on a 30-year fixed-rate loan fell to 4.99 percent. That's the second-lowest on record, after 4.89 percent in mid-January. For every $100,000 in loan amount, the monthly payment would be $536, down from $606 a year ago. And for a 15-year loan, the rate fell to 4.66 percent, from 5 percent a week earlier.
But some brokers question the national surge, noting that conditions have been so bad in recent months that any increase could look more significant than it really is.
"If you've got 10 loans in the pipeline one week, and then you've got 14, well, that's a 40 percent increase," said Thomas J. Liolos, senior mortgage consultant at Premium Mortgage in Amherst. "I probably had one of my best Januarys in years, but January is traditionally a slow market. It's skewed."
Also, the increase locally is not as dramatic as it may be elsewhere, and neither is the difference in rates. For one thing, rates here never rose as much as in other places, and they're inflated slightly by the state mortgage tax, so they're not as low here as elsewhere now.
Fannie Mae and Freddie Mac have also imposed a series of tighter underwriting rules and new "add-on" fees to account for risks like lower credit scores, higher loan-to-value ratios, cash-out refinances, investment properties, low or high loan amounts, subordinate financing, escrow waivers, interest-only payments, and "just about anything else you can think of," said Michael Bonito, president of MultiSource Funding in Cheektowaga.
"They have gone overboard with fees for just about any reason imaginable," Bonito said.
"The rules have gotten so out of line with common sense," agreed Nancy Gascoyne, a broker at MultiSource.
That has driven up the costs by a few points for some borrowers, so that even the unusually low interest rates end up being higher than potential borrowers anticipate, deterring them from applying.
"There's still a lot of people falling through the cracks because of the credit score requirements and the pricing," said Ronald Michnik, who owns Independent Funding in Orchard Park.
Finally, Western New York borrowers are very conservative and traditional, seeking primarily fixed-rate, 30-year loans, with no upfront "points." But the lowest interest rates available usually have those points attached to discount the long-term rate, so they're less popular here.
"We live in a very 'special' area where norms are not true and the flavor of the day doesn't really exist," said Bonito. "We are conservative by nature and cringe when we spend money unnecessarily."
Still, the activity is there. At Hunt Mortgage, where business is usually driven by home purchases, applications are now 60 percent refi. The company has taken about 150 applications since the beginning of February, up from a year ago and better than an average February. Brokers have been proactively reaching out to past customers to bring them in.
"The customers that we're talking to are delighted," said Linda Mallia, president of Hunt Mortgage. "They're saving a significant amount of money, lowering their payments and shortening their terms."
Wiles has one client who saved $400 a month by consolidating a 7.3 percent first mortgage and an even higher-rate second mortgage into a single $171,000 FHA loan at 5 percent, even though he now has to pay mortgage insurance. His old payment was $1,508 for both loans, but now he pays $1,190.
Another customer, already about 10 years into his loan, cut his term from 30 years to 15 years, paying off a first mortgage and a privately held second mortgage. The combined payment before was $819, but the new total is $509, with a 4.625 percent rate.
And it's not just the refis. Lenders are also seeing an increase in home purchases, as borrowers take advantage not only of low rates but also tax incentives and the attractive home values here. Rehab loans are also up, Buscaglia said.
Volume is still a bit slow, but that's expected to grow with the $8,000 first-time home-buyer credit included in the Obama administration's stimulus package. "I think we're going to start to see the purchases pick up -- so that'll be big," Riley said.
At 1st Priority Mortgage, owned by RealtyUSA and still focused on purchase loans, prequalification, application and closing volumes are all up at least 10 percent over last year, said president Brooke L. Anderson-Tompkins.
"We are starting to see purchase activity growing, and that's certainly exciting and encouraging," Buscaglia said. "The stimulus is only going to add."