February 18th, 2010 10:26 AM by Preston Ware
The Primary Mortgage Market Survey from Freddie Mac announced last week that the average rate on a 30 year fixed mortgage dipped below 5% to 4.97%. This average of home rates also included .7 of a point charged to the borrower to get that rate. This is good news for homeowners who have chosen to sit on the fence while we have enjoyed historically low mortgage interest rates.
Over the last year mortgage interest rates have been relatively flat with the exception of a spike in May and June. What is statistically interesting about mortgage rates is that, according to Freddie Mac, in the fourth quarter of 2009, 33% of people refinancing their mortgage lowered the balance. This is the highest “cash-in” share since Freddie Mac began tracking the characteristics of refinance transactions in 1985.
This phenomenon is probably due the changing collective mindset of the American consumer and dropping home values. For many of us, we no longer can erase revolving or installment debt by simply doing a cash-out refinance because we have lost equity in our homes. Also, in general, Americans have taken steps to reduce debts of all types during these difficult times.
Similarly the Federal Housing Authority (FHA) began to tighten their guidelines on Streamline Refinance Programs without appraisal so many borrowers took advantage of that program just before the guideline change at the end of last year.
In the fourth quarter of 2009 FHA switched to a slightly tougher set of guidelines when it comes to doing a streamline refinance without appraisal. They raised the minimum credit score a little bit and require a little more in the file but relatively speaking it is still an easy “no cash out” option. This program allows the customer to lower their interest rate without the use of an appraisal in a very streamline process just as long as we finance a new loan that is less than the old loan amount. What many borrowers are unaware of is that in many cases the mortgage loan officer can pay closing costs for the customer. In some cases we can pay all of the costs! Also, customers who are upside down may still be able to do a loan and lower their interest rate.
Consumers who are weary about increasing their loan amount can lower their interest rate from the mid sixes to say the low fives and capture a savings per month with little or no out of pocket expense. Also with every FHA Streamline Refinance there are three little pleasant things that happen after closing. The customer has a month before they have to make their first mortgage payment with the new lender. They get their old escrow money back from their current mortgage lender and they get a pro-rated rebate of their previous mortgage insurance premium back from FHA. All of these factors are calculated when setting the new loan amount so the customer can set an even lower loan amount knowing that these items will be rebated after closing.
For homeowners who are looking hard to lower payments without reducing equity in their home, they should seriously consider the no closing cost option when comparing interest rates.