Low Interest Rates Spell Savings

August 5, 2010

By Tom Bailey Jr

Forget that $8,000 tax credit for first-time home buyers.

Now may be the time to grab the $39,000.

That’s about how much cheaper, over 30 years, a $180,000 loan is now compared to three months ago when the tax-credit deadline hit.

Interest rates have plunged to the lowest they’ve been in decades.

The low-cost money has enlivened the mortgage departments of Memphis-area banks this summer.

“We’re seeing a tremendous increase in refinancing requests,” said Dean Puryear, mortgage production manager for Regions Bank’s Memphis area.

“July was our biggest month of the year for new applications.”

The Collierville-based community bank, BankTennessee, has even seen an uptick in new-mortgage applications, despite the down economy, said president Jim Rout.

“I think it’s obviously because of the rates. Probably as low as they’ve been in 30 years,” he said.

First Tennessee has experienced a “large surge” in refinancing activity, but not so much in loans for buying homes, reported Joel Graybeal, senior vice president and mortgage production manager.

That more closely mirrors what’s going on in real estate, in which a weak economy and tighter lending standards are keeping many consumers from buying houses.

The number of sales agreements for previously occupied homes dropped 2.6 percent in June, according to the National Association of Realtors.

“Money to buy real estate is on sale right now,” Graybeal said. “And real estate is on sale right now. There’s no better time to be borrowing money to buy real estate than right now.”

Take that $180,000 loan, for example. Puryear broke out his calculator.

A few months ago the interest rate for a 30-year fixed-rate loan was, say, 5.375 percent.

At that rate, the principal and interest on the monthly note was $1,007.95, Puryear said.

Today, at 4.375 percent, the monthly note would be $898.71, for a savings of $109.24 a month. Over 30 years, the loan costs $39,326 less.

So those who missed the tax credit don’t have to despair. “You may have won in the long run by not jumping to take the tax credit,” Puryear said.

In recent weeks at Iberiabank Mortgage Co., 75 percent of its mortgage activity has been refinance and 25 percent loans for new purchases, regional manager Herb Hyman said.

Even a loan with zero points and zero origination fees typically will cost about $2,000 for expenses such as attorney fees, setting up a new escrow account, appraisal fee and state fee, he said. So borrowers should consider keeping their house long enough to recoup the costs.

People ask Hyman how low the rates will go, and of course he tells them he doesn’t know. But he does know the risks of waiting too long.

Inevitably, rates will start going the other way.

“It could get better, it could get worse,” Hyman said.

“Sooner or later it will hit bottom, but you won’t catch it because it’s going to bounce.”

—Tom Bailey Jr.: 529-2388