Mortgage rates dip even as Feds raise theirs (December 31, 2004)

Options help fuel buying frenzy, refinancing
by Jeb Bing

If you thought you missed the chance to refinance your mortgage at reasonably low rates, think again.

Rates are down on a variety of mortgage options despite the increase in the federal funds rate Dec. 14 by another quarter-percent, the fifth in the last six months. These better deals are also fueling a buying frenzy for homes on the resale market in Pleasanton. If only there were any.

As rates have dropped and option packages increased, more buyers are looking at moving up to a larger home. But with only 75 homes on the Pleasanton market, many are also choosing to refinance the mortgages they have and stay put.

"This is good news for everybody," said Darlene Crane, an independent mortgage banker with Residential Pacific Mortgage. "Interest rates are still very bearable. In fact, there are adjustable rate mortgages out there that start as low as 1 percent, although they adjust every month. It'll help get you into that house that you might not have qualified for earlier."

Crane, who has been in the mortgage banking business 35 years, recalls the late 1970s and early 1980s when mortgage rates peaked at 20 percent. Those were the days of many foreclosures and of homes on the market for months awaiting a buyer. In 2004, the average time a Pleasanton house was on the market was 15 days.

Although one-year adjustable rate mortgages have risen slightly to 4.18 percent, other rates have dropped significantly. Thirty-year fixed rate mortgages that were going for 6.34 percent in May are now available for just over 5-1/2 percent. Rates on the popular 15-year fixed-rate mortgages dropped to 5.11 percent two weeks ago

"We also have intermediate loans that are fixed at three, five, seven and 10-year periods at very favorable rates," Crane said. "You can basically get the type of loan you need to put you into the bigger house or to refinance."

Crane added that while many consumers see mortgage refinancing opportunities regularly on the Internet or TV, she believes it's better to deal with local professionals.

"We know the real estate agents and the local market," Crane said, "and usually can offer the same rates along with working directly, face-to-face with everyone involved in the sale."

David Walden, a mortgage loan consultant with Diversified Capital in Pleasanton, said the days of the 15-year and 30-year fixed rate mortgage are coming to an end. "Most people know that they are going to move or refinance in fewer years so they are looking for better options where they can get the most for their money."

He said that people who are facing retirement, might consider refinancing, taking cash out and looking at other opportunities for their equity since equity in their home brings no return on their investment. If one were to consider refinancing and took $200,000 out of their equity, with the tax deductibility of the loan, compound interest and the investment of the funds in, say, tax-free municipal bonds, one might see a return equal to their mortgage loan in 6.4 years. These funds are also very liquid, to the homeowner's advantage.

Walden also said homeowners should consider their employment, age and physical situation. Someone suddenly disabled or out of work could have a difficult time qualifying to refinance home to remove needed equity.

"Clearly, anyone who is considering refinancing or buying should sit down with their financial analyst or, tax advisor and mortgage banker to look at the options before making a move," Walden said.

E-mail a friend a link to this story.