Thu October 4, 2012

Time to Refinance, Again? Colorado Sees Serial Refi Boom

As mortgage interest rates continue to drop, many Coloradans have refinanced their home loans, sometimes multiple times in a short time period. KUNC’s Erin O’Toole spoke with Northern Colorado Business Report Publisher Jeff Nuttall about this trend.

O’Toole: So, Jeff, how long have mortgage brokers been noticing this going on?

Jeff Nuttall: Really all year. Many of those refinancing did so just a couple of years ago, when interest rates were around 4.5 percent. At the time, mortgage professionals thought the rates couldn’t get any lower. Of course, they have continued to fall and those who thought 4.5 percent last year was good – they think 3.5 percent this year is terrific.

O’Toole: (laughs) I would have to agree with that. Historically, just how low have interest rates gotten?

Nuttall: Interest rates haven’t been this low since the late 1940s, Erin. The rate for a 30-year fixed-rate mortgage clocked in at just 3.4 percent a few days ago. Part of the reason for the historically low rates is thought to be tied to the Federal Reserve’s recently announced third round of quantitative easing, or QE3, which is a fancy way for saying economic stimulus.

O’Toole: Right. So is there a magic number? How much of a decrease in interest rate makes it worthwhile to refinance?

Nuttall: Usually a one percent drop is worth refinancing, but in some cases nowadays, brokerages are able to cover the closing costs on a refinance. That means it’s worthwhile for the borrower if the drop is only by a half-percent. Of course whether it makes sense for you also depends on the value of the home and the length of the loan, but many borrowers are able to save hundreds on their monthly payments.

O’Toole: That sounds good -- but are there any downsides?

Nuttall: Not really. Obviously, there are some borrowers, such as those with poor credit, who might not be able to obtain a low-enough rate to make refinancing viable. And borrowers who owe more on their mortgage than it is worth can attempt to qualify for the federal government’s Home Affordable Refinance Program. But if the borrower and a loan officer come to the conclusion that refinancing is the best path, reworking the mortgage can save plenty of money.

O’Toole: So in looking at this issue, just how much money can homeowners save?

Nuttall: Well, as an example, our reporter found a Fort Collins resident who has cut both his interest rate and the term of his loan in half. He has refinanced his home twice in the past year through Cornerstone Mortgage. He originally obtained his 30-year mortgage in 1999 at a rate of 6.25 percent.

Then in February, he refinanced his home loan to a 20-year term with a 4.25 percent rate, followed by another refinance in August to a 15-year term at 3 percent. The low interest rates allowed him to keep his payments relatively low while cutting number of years on his loan, which is great.

O’Toole: And refinancing twice in one year seems unusual. Is this trend occurring elsewhere in the country?

Nuttall: Absolutely. Refinancing a home more than once in a matter of years, or sometimes a matter of months, is a growing trend nationwide as homeowners look to get the lowest rate possible. Nearly 2.2 million homeowners across the country have refinanced their mortgages at least twice since 2009.

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