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SALT LAKE CITY — Record low interest rates aren't necessarily translating into mortgage refinancing for homeowners seeking to save money.
With the average interest rate on a 30-year fixed mortgage loan hovering around 4.15 percent — a 40-year low — a lot of people look into refinancing. However, many people are finding out it is not worth it for them because the value of their homes have dropped.
"Many people that would love to refinance aren't able to because they are upside down in their house," said Kay Ashton, regional vice president of SWBC Mortgage Corp. in Bountiful. "The loan balance they have is higher than what their home will currently appraise for."
Many people that would love to refinance aren't able to because they are upside down in their house.
–Kay Ashton
Ashton said, "There are a ton of people in that circumstance."
But, for those who have sufficient equity in their property — along with good credit, "I couldn't imagine a better time to refinance," he said.
Refinancing applications rose 83 percent in August from this year's low six months ago. The lower rates mean it is easier for some to qualify for a loan, and for others, refinancing is an attractive option because their monthly payments could be lowered drastically.
Affordability continued to set records in August as mortgage rates fell. The Utah Association of Realtors Housing Affordability Index climbed nearly 9 percent to 161 — the highest level since the UAR started tracking the index in 2006.
"Affordability is as good as it's been in the last 50 years," said Lee Carter, senior vice president and residential lending manager for Zions Bank. The situation offers both new opportunities and potential pitfalls, he added, as record low interest rates combined with falling home prices make it an excellent time to purchase a home if "you have a good job, good credit and good down payment."
Beckie Shiveley, a senior loan officer with Altius Mortgage Group, said many lenders are being inundated with calls from homeowners and prospective buyers asking about rates and whether they qualify for a loan or refinance.
"I've talked to a lot of people in the last week and a half," she said Shiveley. "When rates drop a lot of people want to do it."
While the current market has more interest than actual lending activity, a similar situation occurred a few years ago when, during the housing boom, many homeowners inquired about refinancing in an effort to "cash in" on the equity gained as home values rose.
At the time, some unscrupulous lenders and agents used appraisers who artificially inflated property values in an effort to funnel more loans through the pipeline and thus make more money for themselves.
"No doubt that part of the (housing) bubble was created and mortgage fraud commonly happened because there was often times (complicit loan officers, appraisers, real estate agents and title companies) were involved in flipping schemes that drove up the value of real estate unreasonably," Ashton said.
Today, lenders are no longer able to handpick an appraiser. Instead they are typically required to use an appraisal management company that randomly selects approved appraisers from a predetermined roster. The new regulations have effectively minimized potential mortgage fraud.
But Ashton said it has also had some negative impacts as appraisers have gone from overvaluing properties to undervaluing them.
"In my view, it's done more harm than good," he said. "Now the pendulum has swung so far that, in many cases, appraisals are coming in low because of the extraordinary pressure being put on appraisers."
Meanwhile, in an effort to mitigate falling property values, interest rates continue to fall — to less than four percent for some 15-year mortgage loans.
Julia Borst, of mortgage lender Guaranteed Rate, said she clearly remembers the days when rates were double what they are now. The lower rates mean it's easier for some to qualify for a loan, while for others, refinancing is attractive because monthly payments can be much less.
Some homeowners find that with the new low rates they can refinance from a 30-year fixed loan to a 15-year loan and pay roughly the same monthly mortgage payment.
With the stubborn global financial crisis, rates are likely to stay low, she said.
"My guess is we're going to continue to see historical lows for quite some time," Borst said.
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Written by Jasen Lee with contributions from John Daley.
