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Record 25-Year Low Mortgage Rates Escalate Home Refinancings

By Jerry Knight
The Washington Post


Mortgage rates dropped to their lowest level in 25 years this week and show no sign of reversing the steady decline that has saved homeowners $27 billion in interest in the last two years.

With 30-year mortgage rates averaging less than 7 percent, 15-year mortgages available for just over 6 percent and variable rate loans under 4.5 percent, mortgage lenders say they are handling four times as many refinancings as last year and 12 times as much business as they did just three years ago.

So many homeowners are refinancing their mortgages that the lenders, appraisers and settlement companies can't keep up with them, said Washington real estate lawyer Benny L. Kass. ``We are having serious problems," he said. ``The lenders are promising too much and they just don't have the staff to do it."

``It's brutal," acknowledges Pat Casey, regional vice president for Crestar Mortgage, one of the biggest lenders in the Washington area. To keep up with the demand, Crestar has added new automated computer and phone systems, streamlined its mortgage application process and farmed out work to processing firms.

Refinancing volume shows no sign of slowing, he added, because the continuing drop in rates means more and more borrowers fall under the usual rule of thumb: If you can reduce your interest rate by 2 percentage points; if you plan to stay in your house for three years; and if your refinancing costs will amount to less then 3 percent of the loan, you'll come out ahead by refinancing.

Millions of American homeowners have never seen mortgage rates this low, said David Berson, chief economist for the Washington-based Federal National Mortgage Association, known as Fannie Mae.

Economists say low inflation, sluggish economic growth and efforts by Congress and the Clinton administration to reduce the federal budget deficit are the main reasons interest rates have come down. Those factors are likely to keep interest rates on mortgages and bonds low for the next few months, and could push them still lower.

``We could continue to see bond yields and mortgage yields edging down," said David Lereah, economist for the Mortgage Bankers Association, the Washington-based trade association for the home lending industry.

``I don't think the bottom has been reached on rates," said John A. Tuccillo, chief economist for the National Association of Realtors. ``We could see another quarter of a (percentage) point knocked off the 30-year mortgage."

Homeowners who have refinanced in the last two years are saving $9 billion in interest, estimates Lereah of the Mortgage Bankers Association. Homeowners with adjustable-rate mortgages get the benefit of lower rates without refinancing, and their payments have dropped by more than $18 billion in the last two years.