Magazine article American Banker

Low-Cost Closings Spur Consumers to Refinance

Magazine article American Banker

Low-Cost Closings Spur Consumers to Refinance

Article excerpt

THE GROWING AVAILABILITY of mortgages with low-closing costs, or none at all, has raised the level of refinancing, perhaps permanently.

Premium-priced mortgages -- in which all or a portion of the closing costs are absorbed by a higher interest rate -- facilitate refinancings, according to Karl Mendenhall, senior vice president of secondary marketing at First Union Mortgage Corp., Charlotte, N.C.

Mr. Mendenhall said he believes that these types of refinancings may become a fixed part of the mortgage banking landscape.

"With the advent of low-cost or no-cost mortgages, we've seen refinancings of loans only 50 to 75 basis points above current rates," said Mr. Mendenhall. An old rule of thumb was that rates must fall 200 basis points, or 2%, before consumers would refinance.

"Consumers are more aware of how the game is played," said Robert Spears, vice president of Nationsbanc Mortgage of Dallas. He said he believes that a more sophisticated consumer and the opportunity to refinance with no money out of pocket combine for a powerful stimulant to refinancings.

Premium-priced mortgages are themselves more likely to be refinanced, according to Mr. Spears, a fact which has driven up the cost of these mortgages to the consumer.

Mr. Spears reports that the margin tacked on to the coupon rate for a no-cost mortgage has risen from about 50 basis points two years ago to 75 basis points today.

Though many mortgage companies feel pressed to offer no-cost mortgages to compete, some are cutting back. …

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