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Jim Crone, a 61-year-old remodeling contractor, recently refinanced his home.
He lowered his interest rate, term and monthly payment.
He also consolidated two loans into one new loan totaling about ,000.
He eliminated his old 12 percent interest rate on a second mortgage, and went from a 30-year term on his first mortgage to a 15-year term on the new loan at about 6.5 percent. And, he feels much better about retirement plans. "My monthly payment now is about 0 less, and I figure I'll save over ,000."
Crone is among a growing number of homeowners locally and nationally who in recent months have taken advantage of record low interest rates to refinance their current mortgages, often lowering their payments or shortening the loan pay-off term.
He refinanced through First Tennessee Home Loans in Memphis.
So did Stanley Stewart, 47, a state employee who has owned a home in East Shelby County for 10 years. He refinanced recently without taking out equity, or consolidating other debt into the new loan.
"My rate (on the old loan) was 8.5 percent. Most people had told me it would take 2 points (drop in rate) to make the difference to refinance. So, I waited and the market got real attractive," Stewart said.
He refinanced his loan balance of about ,000 and got 6.2 percent rate. He lowered his monthly payment by about 0 with a 30-year loan, he said.
Stewart expects to make additional payments against his loan principal on a regular basis to lower his long-term costs.
Nationally, refinance activity constituted 72.1 percent of total mortgage loan applications last week. That was up from 70.8 percent the prior week, according to the Mortgage Bankers Association of America's weekly survey of activity.
Last year, refinance activity accounted for 59 percent of the .03 trillion in mortgage lending. This year, the MBA is projecting about 49 percent of expected .018 trillion in mortgage lending will be for refinances.
"The refinance boom started in January last year. It has had some ups and downs (as interest rates change)," said Phil Colling, economist with the Mortgage Bankers Association in Washington.
Low mortgage rates have been the primary reason mortgage lending for home purchases are on a record-breaking pace this year.
Low rates also are the major reason refinancing is booming again, Colling said.
"I would suspect that some people who refinanced in January last year for around 7 percent may be refinancing again," he said.
A number of Memphis lenders said they have seen people who refinanced last year coming back this year to refinance, because mortgage rates have dropped to near-record lows.
Earlier this month, the weekly average rate on 30-year loans fell to 6.13 percent. That was the lowest rate since about 1965, Colling said.
Since April this year, interest rates on 30-year mortgages have declined steadily from 7.15 percent to about 6.25 percent in July, said Anne Richards, regional manager for First Tennessee Home Loans in Memphis.
"They'll probably be lower for August," she said.
First Tennessee's volume of refinance lending has averaged about 50-55 percent of its mortgage lending volume this year. The percentage of refinance activity in August will likely be higher than 55 percent, Richards said.
"It's been a while since I've seen a normal market," she said.
However, in more normal times (for interest rates), First Tennessee Mortgage's refinances make up about 20-25 percent of its mortgage lending, she said.
Virginia Green, regional vice president for National Bank of Commerce's Mortgage Lending Division, said their refinance activity has increased from about 38 percent of total loans earlier this year to about 60 percent in July.
"The major reason why people that we see are refinancing is to consolidate their equity credit lines (and first mortgage payment) into one low payment," Green said.
"The other primary reason we are seeing is for cash-out refinances for home improvements," she said.
Mortgage broker John Wiedman, owner of Wiedman Mortgage, Inc., said about 90 percent of his mortgage lending in recent weeks has been for refinances.
"Some people who refinanced last year are refinancing again," he said.
In one case, a person refinanced a 0,000 loan to a 30-year term in April at 7 percent. He just refinanced again to a 15-year loan at 5.75 percent, Wiedman said.
It cost him to refinance, and his monthly note increased by about 0.
However, he could justify the expenses, because he plans to live in the house for the next 15 years. His total interest costs over the full term the new loan will be 0,000 less than the 8,524 in interest he would have paid over the 30-year term at 7 percent, Wiedman said.
Jim Martin, vice president and sales manager for Bartlett Mortgage, said refinancing costs normally range from about 2 percent to 3.5 percent of the loan amount.
"If they don't plan to stay (in the house) awhile, we discourage them from refinancing," Martin said. "They should be able to recoup their costs in about two years (to justify refinancing)."
A few years ago, lenders typically recommended that there be a 2 percent difference in rate to justify the cost of refinancing.
Now, owners with loans more than 0,000 can justify refinancing for 1 percent difference if they are going to stay in the home awhile, Martin said.
"We normally suggest a spread of 1 to 1.5 percent, but it really depends on the loan amount," Richards said.
For loans of ,000 or less, it still takes about 2 percent. But for loans of more than 0,000, it can make sense to refinance for less than 1 percent difference in rate, Richards said.
Ray Rosas, senior loan officer with 1st Trust Bank for Savings, said he has seen some borrowers refinance from a 15-year mortgage to a 30-year mortgage.
They are locking in a fixed rate of a little more than 6 percent and taking money out of the house for various reasons including college expenses, Rosas said.
Travis Chapman, vice president of Southern States Mortgage Co., said most of the refinances he has seen in the past year have gone from 30-year loans to 15-year term.
When 15-year rates fell below 6 percent, refinance activity increased, he said.
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