Mortgage refinancing surge expected

Homeowners are being tempted to refinance their mortgages as the nation’s struggling economy produces the lowest interest rates in nearly a half-century.

The latest drop in rates resulted from the Federal Reserve’s attempts this week to spare the nation from what economists say could be the worst recession in decades.

The Fed cut the federal funds rate Tuesday from 1 percent to a target range of zero to 0.25 percent.

The federal funds rate is the interest rate that banks charge each other for loans, usually overnight.

Lower rates for them are spilling over into lower rates for their customers, which most often means the nation’s homeowners.

On Wednesday, some mortgage brokers were quoting mortgage rates near 4.5 percent for borrowers with good credit who make large down payments.

Applications for refinancing are “up significantly,” said Tim Wilson, president of mortgage business for real estate giant Long & Foster Companies. “Once there’s a 1 percent change, you see a lot of activity.”

Lower interest rates are likely to help pull slow home sales out of their slump of recent months, he said.

“You’ll definitely see a pick-up,” he said. “Low housing prices plus the combination of low [interest] rates will get it going.”

Mortgage application volume jumped last week, fueled by borrowers seizing on lower rates to refinance home loans, the Mortgage Bankers Association said Wednesday.

The trade group’s seasonally adjusted application index rose 2.9 percent to 841.4 in the week ended Dec 12. The index stood at a revised 817.7 a week earlier.

The national average rate on 30-year, fixed mortgages was 5.06 percent on Wednesday, according to financial publisher HSH Associates. It is the lowest since the 1960s and down from 5.3 percent Tuesday.

However, personal finance experts warn that refinancing is not for all homeowners, only the ones with good credit ratings who plan to stay in their homes long enough to recover their refinancing charges.

Closing costs are averaging around $2,100 when appraisals, title examination and other fees are calculated into the refinanced loan, according to industry estimates.

“You really have to be savvy to know what it’s going to cost you,” said Nancy Porter, a personal finance professor at South Carolina’s Clemson University.

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