Homeowners have been giving thanks for more than just turkey during the last two weeks.
The federal government announced Thanksgiving week that it was pumping about
$600 billion into the mortgage industry, sending rates below 6 percent for the average 30-year fixed mortgage.
As a result, area mortgage brokers and bankers said their offices have been busy handling a deluge of refinancing, as people try to take advantage of mortgage rates that haven't been this low since January. Realtors have been using the low interest rates to try to prompt people into buying homes, as many of them worry about job security and the chaotic economic news.
People such as Jason Bach, a financial planner in Brentwood, figured out that it would save him hundreds of dollars per month to refinance his home, so he did on Tuesday.
He went from a 30-year, fixed-rate mortgage at 6.5 percent into one at 5.37 percent. Even though the refinancing cost him $4,000, it will take him less than a year to pay that off in savings. "That's a no-brainer,'' he said.
Although he doesn't think refinancing will be a good deal for all people, the stock market's dismal performance lately and job losses mean more people are turning to other sources of cash.
"In order for me to really help clients, I'm going to have to help them find some money,'' Bach said. "With as many things going on, people might not realize how much rates have dropped."
He said homeowners need to factor in the cost of the refinancing and their monthly
savings before determining whether to refinance.
Mortgage rates have been extremely volatile this year. But average rates for a 30-year, fixed-rate mortgage have remained below 6 percent through last week, landing Friday at an average of 5.57 percent fixed for 30 years with a fee of a quarter of a point, according to financial news publisher HSH Associates in New Jersey. The average 15-year, fixed-rate mortgage stood at 5.44 percent.
On a $200,000 mortgage, a drop in interest from 6.5 percent to 5.5 percent would save a homeowner $128 per month, or $1,536 per year.
"In this economy, where people are trying to pinch their pennies wherever they can, that's a lot,'' said Scott Ractliffe, a senior vice president at Pinnacle Financial Partners and president of the Tennessee Mortgage Bankers Association.
With rumors circulating last week that the Treasury may lower mortgagerates to 4.5 percent, people have been calling Ractliffe's office wondering if they should wait for rates to go even lower.
"It's a gamble either way," he tells them.
Mortgage industry observers expect rates to stay low for the next several months, however. Keith T. Gumbinger with HSH expects rates on a 30-year, fixed-rate mortgage to be in the low to upper middle
5 percent range for the next couple of months.
The refinance boom has been good news for battered mortgage brokers and bankers, whose business has been slowing for more than a year. November and December are typically slow for mortgage deals.
But not so far this year.
"We're almost seeing the seasonality of the holidays taken out of the holidays,'' Ractliffe said. "I think folks are moving ahead. They don't want to wait until spring to see what the rates will do."
The national Mortgage Bankers Association reported last week that refinance activity, in the form of an index, tripled Thanksgiving week from the previous week.
"It puts a lot of smiles on faces,'' said Tim Ferguson, vice president of the mortgage division at Regions Bank in Nashville.
He said mortgage bankers who planned to take the day after Thanksgiving off came into work because of all the work.
Dan Crockett, the president, chief executive officer and chairman of Franklin American Mortgage Co. in Franklin, said his mortgage volume slowed from $1.6 billion in August to $1.3 billion in November, in keeping with the seasonal slowdown this time of year. But low interest rates in the last week of November helped push up refinancing to nearly half his total loan volume, compared with about 30 percent in August.
Home purchases also increased during Thanksgiving week from the week before, but not as much as refinancing, according to the Mortgage Bankers Association. The purchase index was up 37 percent.
Realtors are hoping that low rates will spur home sales in the months ahead.
"I've been calling people this morning when I saw interest rates dropped,'' said Eddie Cox, a Crye-Leike agent in Hendersonville. "My wheels are turning. Who is going to come to the market? This is going to make houses more affordable."
But borrowers are wary of the negative news, which has put a damper on sales. The latest Friday was a Labor Department report saying 533,000 jobs were lost in November, the biggest job loss in 34 years.
Jane Campbell, an agent with Keller Williams Realty in Brentwood, points out that a 1 percentage point drop in interest rates is like a 10 percent discount on a home.
"Unfortunately, they're hearing the news about the economy every day,'' she said. "People are wondering, 'Am I going to have my job?' "
The fears are leading people to refinance from 15-year mortgages into 30-year mortgages, hoping to hold onto more of their cash, said Tim Davis, the vice president of marketing for Titan Home Loans in Nashville.
"People are saying, 'I'm not sure what 2009 holds for me, so let's get a reduction in payment,' '' he said.
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