For the past two weeks, they have been bombarding lenders with applications for mortgage refinancing -- driven by the most attractive rates in more than a year. Refinancings were up in mid-December by 60 percent over the corresponding period last year, and they accounted for more than half of all new mortgage applications -- the highest proportion since the spring of 2004.
Thirty-year fixed rates slipped below 6 percent two weeks ago, and although they have rebounded slightly, they are still nearly a percentage point below where they were last summer. Fifteen-year fixed-rate loans in the mid-to-upper 5 percent range are readily available to applicants with solid credit.
Could a holiday-season refi be in the cards for you? Maybe, but it probably depends on whether you fit into one of several categories where today's rates make a lot of sense:
? You have an adjustable-rate mortgage that's scheduled to reset into higher payments in the six months ahead. Your loan might be a payment-option mortgage, an interest-only mortgage originated in 2003 or 2004 with a three-year reset, or simply an adjustable tied to short-term Treasury rates that's already costing you more than the fixed-rate alternatives.
? You have a "piggyback" first-and-second mortgage package that was originally intended to let you purchase your house with a minimal or zero down payment while avoiding mortgage insurance premiums. But now the floating-rate second is above 8 percent and you want to bail.
? You need cash for a home improvement, a business investment or a vacation home now available at a bargain price. Even though the fixed rate on your first is below 6 percent, the opportunity to cash out thousands of dollars and refinance into a larger replacement mortgage is compelling, even if the rate is a little higher.
So many current homeowners fit into these categories that Anthony Hsieh, president of LendingTree.com, the online network of 200-plus mortgage companies, predicts that this month's refi boomlet could stretch into 2007 -- provided, of course, that rates remain close to 6 percent.
"This has legs," he said in an interview. "This is no head fake; it's for real" because mortgage money at 6 percent offers such exceptional problem-solving opportunities.
For example, Douglas G. Duncan, chief economist for the Mortgage Bankers Association, estimates that $1.1 trillion to $1.7 trillion of adjustable-rate mortgages are scheduled for payment resets in the coming 12 months, and that $600 billion to $700 billion is likely to be refinanced by homeowners eager to avoid higher monthly outlays.
Some of these loans are "nontraditional" mortgages that combine low initial payment periods with drastically higher payments after several years. For thousands of those borrowers facing big payment jumps -- 50 percent, 100 percent or more -- a refi into a fixed-rate mortgage is a no-brainer, according to Duncan.
Other people who purchased during the housing boom years using popular "3/1" adjustables in the mid-4 percent range for the initial three years now face significantly higher payments because short-term interest rates today are much higher.
Consider this example provided by LendingTree: Say you bought your house in late 2003 with a $200,000 "3/1" adjustable at 4.375 percent with a margin of 3.75 percent and a 20 percent down payment. Your principal and interest payments have been $998.57 for the first three years. But now you face a reset into a 7.53 percent rate on your $197,000 balance -- and a monthly payment hike of $383.
Your alternative: Refinance into a new 30-year, fixed-rate, $197,000 mortgage at 6.1 percent. Sure, your payment will be about $195 higher than your current 4.375 percent rate, but not what you would pay if you stuck with your current loan's post-reset rate.
Here's another scenario: Say you have a great rate on the $200,000 first mortgage that you took out in 2002 -- 5.5 percent. But you need $25,000 cash for kitchen remodeling or a business investment. On the one hand, you hate to get rid of a once-in-a-lifetime 5.5 percent rate. However, you have the opportunity to pull out the $25,000 with a refi, add it to the $192,500 balance on your current loan, and walk away with a new $217,500 replacement mortgage at 6.1 percent fixed for 30 years.
Your new monthly payment: About $184 higher than your current.
A gift from Santa? Hardly. Cash-out refis cost money. But your 6.1 percent fixed rate -- not far above 40-year record lows -- should still look good years from now.
By Kenneth R. Harney
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