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How low can mortgage rates go, and what will that mean to Utah's recession-weary borrowers?
Those are among the questions many in the mortgage business are asking this week as the average rate on a 30-year fixed mortgage has fallen to the lowest level on record.
Thirty-year home loans average 4.15 percent nationally, down from 4.32 percent a week ago, mortgage giant Freddie Mac reported Thursday. That's the lowest level since the company began keeping track in 1971. The previous low was 4.17 percent in November.
The average rate on 15-year fixed mortgages is even lower, dipping to 3.36 percent, also a record.
"Who would have ever thought rates would be this low for this long, and that now we get even lower rates," said Lyman King, senior loan officer with Security National Mortgage in Midvale, a 20-year veteran of the mortgage business. "It really boggles the mind."
Salt Lake-area lenders say the drop has generated renewed interest in refinancing.
"A lot of people who were sitting on the fence, waiting for the right time to refinance, are now getting motivated," said Salt Lake City mortgage lender Nathan S. Pierce, president of the Utah Association of Mortgage Brokers.
Over the past 2½ weeks, Pierce said his office's loan volume is up by more than 50 percent, with people trading in rates in the 5 percent range for those in 4 percent range or even less. Generally, those who have rates at least 1 percentage point higher than current rates and who plan to be in their homes for at least a year or more may want to consider refinancing.
But not everyone can refinance, of course.
Those who have faced foreclosure or who have sold their home via a short sale — failing to repay their lender all that they owed on their property — generally cannot qualify for another home loan for at least three years. Others, who have faced pay cuts, bouts of unemployment or seen their credit quality slide during the downturn, probably can't qualify because their incomes and credit aren't good enough.
But perhaps an even bigger obstacle to refinancing — in Utah and the rest of the country — is declining home values. About one-quarter of homeowners in Salt Lake City are either "underwater" — meaning they owe more than their homes are worth — or are approaching that point, according to housing data firm CoreLogic.
Most lenders want to see some amount of equity before they allow a borrower to refinance. A number of lenders are offering some loan products designed for those who don't have a lot of equity or owe more than their properties are worth, but not everyone can qualify.
Among those who are refinancing, though, here are some trends:
Borrowers are taking out shorter-term loans • They are refinancing into 10-, 15- or 20-year loans with the goal of paying off their loans earlier. That's an abrupt change from the Wasatch Front boom years of 2004 to 2007, when homeowners refinanced to take cash out of their properties.
This time around, lenders say, more borrowers are interested in paying down loan balances. Generally, the shorter the term of the loan, the lower the mortgage rate. One downside to shorter-term loans, of course, is that a borrower is locked into higher monthly payments.
"Some people are a bit worried about [that]," said King of Security National Mortgage in Midvale, noting that as a result borrowers are opting for 20-year loans, another popular alternative that would have a slightly lower payment than a 15-year loan.
Some borrowers look to adjustables • Typically, when rates for fixed-rate loans are so low, few borrowers consider the adjustable-rate option. But some are electing to go that route for ridiculously low rates in the mid-to-high 2 percent range.
The 5-1 adjustable is so named because your rate remains fixed for five years, adjusting each year after that or the life of the loan. There's also a 3-1 loan, which remains fixed for three years. There are other adjustables that remain fixed for seven or 10 years.
Rates on each of these products vary, but generally, adjustables with the shortest fixed term have the lowest rates.
With adjustable rate mortgages (ARMs), however, it's important to read the fine print and know the risks.
Typically, there's a limit by which the ARM rate can increase each year. The bumps have created problems for many borrowers over the past five years because they are unable to keep up with mortgage payments after the rates begin to adjust upward.
The Associated Press contributed to this report.
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