Refinancing Activity Surges Falling Mortgage Rates Fuel Increase In Interest

Homeowners are taking advantage of falling mortgage rates to create the second refinancing boom of the 1990s.

Frank Nothaft, deputy chief economist for the Federal Home Loan Mortgage Corp., said Wednesday that refinance activity is approaching the levels seen during the 1992-93 boom.

“Our survey of mortgage lenders indicated that 46 percent of mortgage applications in January were to refinance existing loans,” he told reporters. “That is the highest level since March 1994, the tail-end of the last refinance boom.”

The 1992-93 boom peaked in October 1993, when refinancing comprised nearly 75 percent of mortgage activity.

Nothaft said his company expects the cost of 30-year fixed-rate mortgages to remain low in 1996, averaging just 7.3 percent.

Refinance activity fell to just 10 percent of the mortgage market in January 1995 as rising mortgage rates made refinancing less desirable.

After sinking to a 25-year low of 6.74 percent in October 1993, 30-year fixed-rate mortgages shot up to 9.25 percent at the end of 1994, according to weekly surveys by the company, known as Freddie Mac.

The monthly payment on a $100,000 mortgage with a 7 percent interest rate is $665, while the payment on the same loan with a 9 percent rate is $805 - a difference of $140.

As the economy slowed last year, long-term interest rates began falling sharply. Freddie Mac reported last week the 30-year loans averaged just 6.94 percent.

Nothaft said Freddie Mac expects the refinancing share of the mortgage market to remain high during the current quarter before giving way to purchase applications as the spring home-buying season arrives.

In Spokane, the manager of Washington Mutual Bank’s mortgage loan center said refinance activity has climbed to almost 40 percent of incoming applications.

“We’re getting a lot of inquiries,” added Robert Titchborne, who said the rate on a 30-year, fixed-rate loan was 7.75 percent Wednesday.

Rates rose this week in response to a slump in bond prices, he said.

A survey of Washington banks and other lenders last week by Market Trends Inc. pegged the average rate on a 30-year loan at 7.26 percent.

Vassilis Lekkas, Freddie Mac’s senior economist, said 68 percent of homeowners refinancing 30-year fixed-rate mortgages in 1995 chose new 30-year loans, up sharply from 54 percent in 1994. That ratio jumped to 77 percent in the final three months of last year.

Just 2 percent of borrowers with 30-year mortgages chose adjustable rate loans when refinancing, down from 9 percent in 1994, he continued. Demand for 15-year mortgages, often a popular option for people refinancing mortgages, was virtually unchanged at 25 percent.

, DataTimes