Springfield lenders offer advice on home refinancing

Nationwide, many borrowers are taking advantage of low interest rates to refinance their mortgages.

According to Tish Morgan, loan officer for Primary Residential Mortgage, 3029 E. Sunshine, the trend locally is the same.

"We've seen a lot of refinances," she said. "Of course, everybody wants to get a better interest rate."

Morgan said that many people refinanced in 1998, when mortgage rates were similar to today's rates. "We're not seeing as much as we did then," she said. "But then, we're not through this one yet."

Refinancing pattern

Charles Gottas, president of Systematic Savings & Loan Association, 318 South Ave., said he hasn't observed a tremendous increase in refinancing. "We've had a little bit of an increase," he said, "but we haven't had any rush on it."

Since a lot of people refinanced a few years ago, they already have a low rate, Gottas said.

"Those who would be in a refinancing mode are those who locked in during the past couple of years when interest rates were higher," he said. He added that borrowers with a high loan-to-value ratio may find it difficult to find refinancing.

Dividing the difference in the payment into the total closing costs can help determine if refinancing is a wise move, said Dawn Selim, president of Southwest Mortgage Company, 721 W. Elfindale.

"If you're getting an interest rate that is 1 percent lower, it makes a tremendous difference in the amount you're paying over a time period," she said. "If you're going to make the same payment, you can accelerate the payoff of the loan."

When to refinance

According to Morgan, a general rule of thumb is that a 2 percent rate drop would make refinancing worthwhile, but there are other factors to consider, such as the length of time the person is planning to stay in the home. "You have to figure out what your closing costs are going to be," she said. "You have to pay the majority of the charges that you initially had when you purchased the home."

This total cost, which includes the credit check, appraisal, and title work, will depend on individual circumstances such as the size of the loan and the borrower's credit rating. "Usually you can roll these costs back into the loan, but you still have to pay it back," Morgan said.

Gottas believes that some people who are considering refinancing may be waiting for mortgage rates to drop even more, but he doesn't foresee any further significant reductions in the near future. "If somebody was going to refinance and was holding out for an even lower rate, I'd advise them to do it now," he said.

Federal Reserve

There may be more actions by the Federal Reserve, but as far as affecting mortgage rates, Gottas said that bond rates are a better indicator. "Mortgages follow bond rates because they act like them." He added that since bond prices have recently gone up, "mortgage rates might not be going down anymore, and they might start creeping up."

Selim summed up the homeowner's options. "People can refinance for a lower rate, or they can take out money for investment purposes," she said. "We have a lot of people wanting to consolidate their debt." Many people are paying high interest on consumer debt, Selim added. "They can pay off debt with equity and stop that credit treadmill."

By consolidating debt, homeowners can save a lot on interest because mortgage rates are lower and the interest is tax deductible, Selim said. "We see a lot of people who have so much credit card debt that they're never going to be able to pay it off. The interest rates are so high."

Consolidation

According to Selim, for those who haven't handled credit very well, debt consolidation is a tool that can "undo the hardship of the learning process," by providing a way to start over and avoid bankruptcy.

"I feel that we should be advising people to avoid bankruptcy," she said. "The American public is really paying for the cost of bankruptcy."

Over time, anyone can build up equity, according to Selim, and such tools as debt consolidation can help establish new patterns of spending and saving,. "The equity in your home can help reorganize your financial future," she said.