Andrew and Peggy Sheren can't resist a good deal, especially when it comes to financing their McLean, Virginia home.
"We’ve gone from an interest rate from something like greater than 6 percent down to the lowest interest rate we currently have is three and an eighth percent," Andrew remembers. They have refinanced their home four times in four years, taking equity out only the first time for a renovation, but essentially cutting their interest rate in half.
Negative economic reports of late have pushed the rate on the popular 30 year fixed to below 4.5 percent, the lowest this year and just about a quarter percent off the 50-year lows we saw last summer; adjustable-rate products are even lower. When investors see bad economic news, they pull money out of the stock market and park it in bonds. The price of bonds goes up, the yield goes down, and mortgage rates follow down.
"If we see continuing demand in mortgage backed securities, we’ll see further pushes lower. If we see continued doses of bad economic news, the stock market taking beatings, we don’t see positive economic news, continually bad jobs reports and previous months of jobs reports revised lower as we saw last week, then rates will continue to push down as we see that," says Craig Strent, CEO of Apex Home Loans, a small mortgage lender in Rockville, Maryland. Strent has seen a big surge in refinance requests in just the past few weeks. Nationwide, refinancings are climbing as well, while mortgage applications to purchase a home remain flat at very low levels. Strent, who obviously sells mortgages for a living, says regardless if you've already refinanced, you can still stand to save money over the long term.
"If you look at how much can I save in my interest costs and how much will it cost me to do it, and how long will it take me to breakeven and recover those costs? Am I going to be living there that long? And if the answer is yes, it’s going to make sense to refinance," advises Strent.
That's why the Sheren's keep going back to the table. They have gone from a fixed-rate loan to an adjustable rate mortgage on their Virginia home and have also refinanced the loan on a property they own in California. By making some changes to the loan value and term, they have been able to do this at little to no extra cost.
"We did a refinance in California where we actually got negative closing costs," boasts Andrew Sheren, adding, "I think that’s where we did pay half a point."
The trouble of course is that one in five borrowers owe more on their homes than their homes are currently worth. 10.9 million, or 22.7 percent of borrowers were in this negative equity position, or so-called "underwater," position at the end of March, according to a report out this morning from Core Logic, and while negative equity is improving in some of the hardest hit states, it is getting worse in states you might not expect. Nevada still has the highest rate of negative equity, but in New York, borrowers are underwater by the most, an average $129,000.
Being in a negative equity position makes it far tougher to refinance. There are government programs through Fannie Mae, Freddie Mac, and the FHA which offer underwater borrowers a chance to refinance, but there are many qualifications that many borrowers don't meet. Some borrowers are choosing to do cash-in refinances, where they are putting more money into the mortgage, the opposite of what happened during the housing boom. This helps them get a better rate. Unfortunately, the borrower who need to refinance most, likely can't. But for those who can, it can make sense, over and over.
"Nobody gets rich, so far as I know, through refinancing, but what you do do is you save cash flow," says Andrew Sheren.