Less than a year after buying their first house, David and Lori Scott have returned to their mortgage lender, eager to pay off their old loan and secure a new one.
They’ll have to shell out at least $1,500 in refinancing costs, fill out numerous forms and retrieve old records, but the couple thinks it’s worth the trouble to take advantage of the recent dive in interest rates.
“We plan on staying in our house a long time,” said Scott, 26, a refrigeration engineer. “We’re buying peace of mind.”
He and his wife, a 25-year-old administrative assistant who is expecting the couple’s first child this winter, are trading an adjustable rate mortgage currently at 7.25 percent for a 30-year fixed mortgage at the same rate. Their ARM was set at 7.25 percent for five years, but could rise up to five percentage points to 12.25 percent for the remaining 25 years of the loan.
Homeowners across the country are securing similar deals as they rush to cash in on the lowest mortgage rates since 1993. Financial experts, however, urge caution, noting that high closing costs can erode potential savings and that deals can vary widely from lender to lender.
Rates on 30-year, fixed-rate mortgages have slid to a national average of just under 7 percent.
The Mortgage Bankers Association says refinancing activity is now at the highest level in about two years, with refis accounting for 44 percent of mortgage applications. That’s up from 27 percent in January 1997, though below the 51 percent rate in February 1996. The highest level was in September 1993, when refis comprised 63 percent of mortgage activity, the trade group said.
Frank Nothaft, deputy chief economist for the Federal Home Loan Mortgage Co. predicts high refinancing volume through the first quarter as mortgage rates remain low.