While thousands of first-time buyers are taking advantage of lower mortgage rates--as the numbers in The Times' 16th annual Survey of Residential Building in Southern California indicate--millions more are staying put and refinancing their existing loans at today's lower rates.
In fact, some firms say the nation's housing market is on the brink of a "second wave" of loan refinancings now that fixed-rate mortgages are nearing 8%--and that could mean more of the loan logjams that were created when rates dropped below 10% a year ago.
A nationwide poll of 400 real estate brokers, conducted by St. Louis-based Opinion Research Inc., found that 71% of the respondents said their clients and potential clients are asking "a lot of questions" about refinancing.
"The poll shows that the era of refinancing is not over and that we are on the brink of a second wave," said Ed Gresham, chief executive officer of ERA Real Estate, the Overland Park, Kan.-based brokerage firm that sponsored the poll.
Can Be Good Idea
"Now that interest rates are at 9% and below, anyone with an 11% mortgage is smart to take another look at what refinancing can do."
A general rule of thumb is that refinancing can be a good idea if a homeowner can reduce the interest rate on his home loan by at least two percentage points.
Unfortunately, homeowners who refinance today don't get the same amount of tax breaks that owners who refinanced before this year received. The Internal Revenue Service recently ruled that the prepaid interest on a refinancing loan--commonly called "points"--can't be entirely deducted in the year in which the points were paid. Instead, those deductions must be taken in equal annual portions over the life of the loan.
Limit on Deductions
In addition, a provision in the tax reform legislation generally limits an owner's interest payment deductions to the original cost of the home, plus the cost of any improvements.
The good news is that lenders generally agree that a second wave of refinancing won't create the same type of problems they experienced in 1986. Most lenders were unprepared for last year's big rush, which resulted in most consumers having to wait months before their loans could be processed.
"A lot of the pent-up demand (to refinance) has been satisfied," says Monica Wiley, a spokeswoman for San Diego-based Home Federal Savings. "Besides, many lenders added staff and beefed up their loan processing system after the first wave hit last year, so the people and the mechanisms to handle a second wave are already in place."