Mortgage lending: Low rates keep first-time buyers, refinancing levels up

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After an unprecedented run of historically low mortgage interest rates, local lenders expect rates to rise from here on.|ret||ret||tab|

"We probably bottomed out on the market (on March 11)," said Jim Payne, president and CEO of Southtrust Capital Mortgage Inc. |ret||ret||tab|

Payne has been an independent mortgage provider since 1987. "Since (March 11) the market has crept up about a quarter of a point on both 15- and 30-year loans, but these are still fabulous rates no one has heard of in my time." |ret||ret||tab|

Payne's rates on 15-year loans, which were 4.75 percent on March 11, are hovering around 5.25 percent. Rates on 30-year loans, which were 5.625 percent on March 11, are about 6 percent.|ret||ret||tab|

Kathy King, president and CEO of Mid-Missouri Mortgage Company, and Ruth Snowden, branch manager of Countrywide Home Loans' Springfield office, report similar rates.|ret||ret||tab|

"It is so unstable it is just unbelievable," said King. "I can remember in the '80s when it was 18 1/2 (percent). Our business is so economy driven, we respond to what the market offers, but we don't really set the rates; they are dictated by the market."|ret||ret||tab|

Subtle differences in the interest rate can make a huge difference on an average home loan.|ret||ret||tab|

On a $100,000 loan, the monthly principal and interest payment at 6 percent would be $599.55; a 6.5 percent loan would be $632.07; and a 7 percent loan would be $665.30.|ret||ret||tab|

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Refinancing|ret||ret||tab|

With the lower rates, mortgage providers have experienced a boon to their business via refinancing.|ret||ret||tab|

"We did somewhere around $24 million last year, and refinancing made up 60 (percent) to 65 percent of that. I've refinanced some people three times in the last two years," said Payne. |ret||ret||tab|

Said King: "Refinances are crazy right now, they are 50 percent of our business right now, where ordinarily they are 10 (percent) to 20 percent. Purchases are your main source of income, while refinances are a luxury, but we really try to treat them the same."|ret||ret||tab|

When deciding to refinance, there is a simple formula to determine if the time is right.|ret||ret||tab|

"A refinance on $100,000 will cost approximately $1,400 in closing fees," said Christina Campbell, a loan officer with Farris Mortgage. |ret||ret||tab|

"If someone is lowering the monthly payment by $100 a month, it will take around one year to justify the expense. If they're going to stay in the house, it's worth it because they're going to save a ton of money." |ret||ret||tab|

First-time buyers|ret||ret||tab|

Mortgage lenders have also seen an increase in first-time home ownership. |ret||ret||tab|

"With interest rates what they are now, people can find very good housing in the lower price ranges, and in this area a house payment is often less than a rent payment would be. So it makes a lot of sense for people with good credit to get into this market," said Snowden. |ret||ret||tab|

Lenders attribute the low rates to the faltering economy. |ret||ret||tab|

"It's strictly economics at this point," said Payne. |ret||ret||tab|

"What the Federal Reserve tries to do is to try and stimulate development, but it's not so much for residential lending as it is commercial development. But if they can spur development by keeping rates low, then that pushes rates down our way, too." |ret||ret||tab|

Lenders are uncertain as to how long the trend of low interest rates will continue. |ret||ret||tab|

"All of the experts seem to think they're going to hover fairly close to what they are now with a slight increase," said Payne, "But the ranges have been fairly timed in terms of the economy." |ret||ret||tab|

King, however, believes these low rates cannot continue indefinitely. |ret||ret||tab|

"History tells you it has to change. I don't see how it can stay here," King said. |ret||ret||tab|

Which leaves lenders with concerns as to how they will maintain themselves without the supplemental income of first-time home buyers and refinance business. |ret||ret||tab|

"Right now the economy is struggling and our country is not sure how to handle it, which makes everything volatile," said King.|ret||ret||tab|

"It's a win-win situation for first-time home buyers and refinances, but it's hard to know what we will do two years from now. It's going to be a struggle, and we are going to have to seek out new business. This business is different every day."|ret||ret||tab|

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