According to the Mortgage Bankers Association, the mortgage loan application volume filed in the U.S. last week decreased by 8.5%, compared with the previous week. Mortgage interest rates increased during the week ended Friday compared with the week before, according to the MBA weekly survey. The survey covers about half of all U.S. retail residential home loan applications.
The share of applications filed for a mortgage refinance dropped again last week. Mortgage marketing executive, Bryan Dornan believes, “the decrease in refinance applications can be directly attributed to homeowners becoming more educated on what is need to qualify for a refinance loan in today’s credit crunch.” Dornan continued, “Borrowers have either been denied recently or they understand that have late payments on their mortgage payment will prevent them from qualifying with traditional lenders. Borrowers continue to seek help refinancing existing mortgages dropped to 68.1% of total loan applications from 69.3% the previous week. The four-week moving average for all home mortgages was up 1.6%.
Adjustable-rate home loans made up 4.7% of total applications, up from 4.4% the previous week. Rates on 30-year fixed-rate mortgages averaged 5.03%, up from 4.94% the previous week, while 15-year fixed-rate mortgages averaged 4.35%, up from 4.33%. The one-year ARMs interest rate grew to 6.8% from 6.67%.
It is very important that you consider the lending costs and benefits when comparing mortgage refinance loans. Charles and Nancy Henson refinanced their home mortgage last year, and Charles Henson says it was not a difficult decision. “The mortgage rates had dropped, and we wanted to do something a little more secure,’’ he said. “Our previous rate was 5.625%. We ended up locking our home loan at 4.875%.’’ The current mortgage rates have spurred many to consider mortgage refinancing – basically replacing one loan with another. Depending on the new loan’s terms, it can save you tens of thousands of dollars.
Each refinance mortgage is its own case, due to many factors: your loan, your credit, your home’s equity, the interest rate, the cost of the refinancing, and so on. Some things to consider:
■ Interest rate. “If you can save half a point or more on your interest rate, that can be a good indicator to refinance,’’ said Kay Sandusky of Citizens National Bank of Southwestern Ohio. Sandusky added: “If it is going to cost you $2,000 to do the refinance and you are saving $200 per month, do the math and consider how long you will be in the home and if that is a savings to you.’’ “How long you’re going to be in the home is a big factor,’’ Penner said. “If someone is going to live in the house three to five years, [refinancing] may not be a great idea.’’
■ Total cost benefit. Kim Penner of Union Savings Bank said you have to consider total costs when considering refinancing. “Your lowest interest rate alone is not always your best deal,’’ Penner said. “You have to see if it makes sense to get a lower rate if your costs are high.’’
■ Short term vs. long term. “Think about what term of loan you want,’’ Penner said. “Is cash flow an issue? Are you looking at retiring?’’ He added that the sooner you pay off a loan, the more you save on interest payments. “The difference in interest could be $40,000, $50,000, $60,000,’’ Penner said. Henson is retired and his wife is self-employed, but he said they chose a 30-year rate because it was a more conservative approach, given the economic climate. They “decided we could make a 30-year into a 15 by paying more on the principal each year,’’ Henson said. “With a 30-year rate, you have the flexibility if you want to pay extra.’’
■ Credit score. Borrowers who have at least a 740 get the best terms. If your credit score is lower, you can still get a loan, but at a higher interest rate.
■ Know your home’s equity. “You have to have 20% home equity ask for a conventional home loan without private mortgage insurance,’’ Sandusky said, though there are other options. FHA home loans have mortgage insurance, but if your credit is outside of the conventional box or if you have no equity, talk to a FHA mortgage company, because these government loans may be your best option for refinancing.
■ Talk to a professional. “I ask a lot of questions about the borrower and offer options,’’ Penner said. Be careful shopping for a mortgage online. Don’t let banks obtain your credit report each time. “Multiple inquiries on your credit report in a short period of time can harmful to your credit,’’ Sandusky said. “Know your credit and tell the bank.’’
Bankers responding to the January 2010 Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices indicated that home loan standards are still contracting. The report also states that consumer demand for mortgage loans continues to decline. The survey, released on Monday, addresses changes in loan supply and demand over the last three months. It also included three sets of special questions about delinquency rates of loans made to large and middle market firms, changes in bank policies about commercial real estate (CRE) loans over the past year, and a third set of questions about the banks’ outlook over the coming year for the credit quality of a number of categories of loans. 55 domestic banks and 23 U.S. branches and agencies of foreign banks responded to the questionnaire. Banks continued to tighten standards on residential lending, especially on nontraditional residential real estate loans. 17% of banks that make residential loans reported they had tightened standards on prime real estate loans and 30% reported such tightening of mortgage refinance products.
In addition, a moderate net fraction of banks reported weaker demand from prime borrowers for residential real estate loans. Demand from customers seeking nontraditional mortgages also weakened further over the survey period. Only a small net fraction of banks reported having tightened standards on revolving home equity lines of credit over the past three months, but a large net fraction of banks continued to report lower demand for such mortgage loans.
Demand for both businesses and households across all major categories of loans weakened on net over the past three months. 64% of respondents reported that business inquiries about new or increased credit had stayed about the same over the last three months while 13% reported an increase and 25% a decrease. A large proportion of respondents reported that their banks were relatively unchanged in their approach to consumer lending. Over 80% said that their banks policies were unchanged when it came to approving applications for installment, consumer, and credit card loans. However, a substantial net fraction of banks said they had reduced credit limits on credit cards and had become less likely to issue cards to customers who do not meet credit scoring thresholds.
Respondents to the October 2009 survey had indicated that they would tighten many of their credit card policies as a reaction to passage of the Credit CARD Act. Home loan terms were seen as being a little more in flux but the net %ages of respondents who tightened those requirements was lower than in the previous quarter. When considering lending to large firms – those with annual sales of $50 million or more 76 % reported there had been no change in the maximum home equity credit lines, 16% reported a tightening in the maximums and 7% said those terms had eased. Maximum maturity dates were unchanged in 83% of reports. Only 64% of respondents reported no change in the cost of credit lines while over 23% reported that these standards had tightened somewhat or considerably. Close to 26% reported that the spread charged to commercial borrowers had widened over the last three months compared to 58% that reported it unchanged. About 10% reported they had tightened collateral requirements, the remainder reported no change. Figures for lending to smaller companies varied only slightly from those reported for large firms. Read the original article at Mortgage News Daily
