Is It Finally Time to Refinance?

16 Sep

Rates for a jumbo fixed-rate mortgage have dipped to a year-to-date low
By Anya Martin Wall Street Journal Sept. 3, 2014 1:14 p.m. ET

Average rates for a jumbo 30-year fixed rate mortgage dropped to a year-to-date low of 4.15% in the week ending Aug. 29, according to mortgage information site Chris Gash

Jumbo borrowers who missed last year’s refinance train now have an opportunity to jump aboard.

Average rates for a jumbo 30-year fixed-rate mortgage dropped to a year-to-date low of 4.15% in the week ending Aug. 29, according to mortgage-information site Average rates for this type of mortgage were as high as 4.7% in January.

Stamford, Conn.-based Luxury Mortgage, which serves high-end clients in Connecticut, New Jersey and New York, is seeing a slight uptick in jumbo refinance applications. Luxury Mortgage’s Managing Director Peter Grabel says that these borrowers aren’t only refinancing because of lower rates. Clients are consolidating debt, replacing a home-equity loan, shortening the length of a loan or converting an expired adjustable-rate mortgage to a fixed-rate one.

The uptick has yet to approach the boom of 2013, when borrowers, energized by even lower rates, started a refinancing frenzy. Refinances of all mortgages accounted for 78% of total mortgage origination dollar volume in January 2013, according to Inside Mortgage Finance, an industry newsletter. Since many eligible borrowers have already refinanced, by the second quarter of 2014, that number fell to 36%, the second-lowest overall volume since the 1980s, says Guy Cecala, CEO and publisher of Inside Mortgage Finance.

While he hasn’t seen a substantial pick up in refinancing, Mr. Cecala says refinancing might make sense for borrowers who lacked sufficient home equity in 2013, but may now qualify because of a subsequent rise in home values.

Conventional borrowers are often advised that new rates need to be at least one-half point below their current rate to compensate for the cost of the refinancing itself. However, since jumbo loan amounts are larger, even a quarter or one-eighth percent change in rate can result in substantial savings in interest payments over the loan’s life, says John Schleck, centralized and online sales executive for Bank of America Home Loans.

Jumbo borrowers considering a refinance should weigh their financial picture, including how long they plan to stay in their home, their job situation, their retirement plans and their investment situation, Mr. Schleck says. Because access to large amounts of cash may be more or less important at certain life stages or circumstances, high-end borrowers should consult not just a mortgage professional, but also their investment adviser or private banker, he adds.

Another refinancing advantage for jumbo borrowers is that many lenders are now hungry for jumbo loans, Mr. Cecala says. Lenders have been loosening underwriting qualifications, including minimum credit scores and loan-to-value ratios, he adds. “[Jumbo] borrowers who ran into trouble getting qualified or approved for refinancing a year or two ago definitely should check out whether it makes sense now,” Mr. Cecala says.

Jumbo borrowers who plan to move within the next five years may also save by switching from a 30-year fixed-rate loan to a five-year ARM, says Keith Gumbinger, vice president at HSH. Average jumbo 5-1 ARM rates were as low as 2.97% for the week ending Aug. 22, but crept up slightly to 3.02% for the week ending Aug. 29, according to HSH.

Interest-only ARMs are another good option for clients with cash-flow issues, allowing them to have a lower monthly payment and then make an end-of-the-year lump-sum payment—perhaps after a bonus arrives—to reduce the principal amount, Mr. Schleck says. With a refinance, “it’s more important to find the right product for your situation than to get the lowest rate in the wrong product,” he adds.

Here are a few more tips to consider if contemplating a jumbo refinance.

Appraisals still matter. Most jumbo mortgages will only make loans up to 80% of appraised value, but appraisals tend toward conservative estimations and lag behind market conditions, Mr. Cecala says.

Speak up. Because lenders are eager to expand their jumbo-mortgage portfolios, borrowers should shop around and not hesitate to negotiate rates and fees, Mr. Gumbinger says. “I wouldn’t say that you are in the catbird seat per se, but [jumbo borrowers] may be able to negotiate some concessions and a greater level of customer service,” he adds.

Breathe. Borrowers who aren’t ready to refinance now don’t need to feel pressured to hurry. Rates are likely to remain stable through year-end, though they could climb back to the mid-4% range by next spring for a 30-year fixed-rate jumbo, Mr. Gumbinger says.


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