Mortgage rates are low, but no rush

Low interest rates are opening up refinancing opportunities, but you shouldn't feel any need to rush into a loan application.

With a sluggish economy and an accommodating Federal Reserve, mortgage rates could remain low for at least another couple of years, said Greg McBride, a senior financial analyst at Bankrate.com.

Still, refinancing could make sense if you can shave your interest rate by at least 0.5 to 0.75 of a percentage point, he said.

"About 80 percent of mortgage applications now are for refinancings," he said. "Activity really picked up earlier this month, when rates (for 30-year fixed loans) dropped below 4 percent."

Even as low rates beckon, not everyone can take advantage of them.

"The biggest problem that people are running into are (low) appraised values," said Amy Swaney, a senior loan officer at Citywide Home Loans in Phoenix. Before starting the application process, she suggests checking to see what your home is worth by contacting a real-estate agent, rather than relying on an online site whose estimates could be way off base.

One rule of thumb is to consider refinancing if you can recoup your expenses within two or three years, McBride suggests. You can calculate that by dividing closing costs by the annual savings, in decreased payments, from a new loan.

Swaney said she believed refinancing only made sense if you could shave at least 5 percent from your monthly payment - for example, going from a $1,000 payment to $950 or less. This assumes you're staying with the same type of loan.

But she also suggests that borrowers consider moving into a shorter loan, such as one with a 15- or 20-year term, for people who can afford to do so since they stand to save so much interest over time.

McBride sees three main groups of homeowners who can benefit from refinancing: those obtaining a lower rate, those moving from an adjustable-rate mortgage to a fixed loan and those converting from a jumbo mortgage to a conforming loan, which carry lower rates anyway.

If you want to refinance but have suffered an equity loss due to falling home prices, the Home Affordable Refinancing Program (HARP) might help.

"It's geared to people who have been making their payments on time," McBride said. Through HARP, homeowners can qualify for refinancing even on loans that are up to 25 percent higher than a home's value.

Swaney also likes HARP but cautions that some borrowers will have trouble qualifying.

- With mortgage rates so low, you would think they'd all be clustering together. But in fact, that's not the case, according to LendingTree.com.

Lenders on the company's network are quoting interest rates that vary noticeably. On Tuesday, for example, average 30-year fixed home-loan rates carried an average annual percentage rate (APR) of 4.58 percent and 3.97 percent for 15-year loans. But the lowest quoted rates were 3.88 percent for 30-year mortgages and 3.22 percent for the 15-year variety.

"We're seeing an increase not only in interest rates, but also in pricing disparity between lenders, which means it's more important than ever to shop around for your loan," said Mona Marimow, a company senior vice president.

Money notes

- American companies don't rate too highly on a new list of the world's 50 safest banks from Global Finance magazine.

Only six U.S. banks make the list, and just one is in the top half - No. 24 BNY Mellon. Those further down include JPMorgan Chase (34), Wells Fargo (36), U.S. Bancorp (40), Northern Trust (44) and CoBank (45).

The study analyzed banks based on assets and long-term credit ratings from Standard & Poor's, Moody's Investors Service and Fitch. Successful banks also tended to have improving balance sheets and declining volumes of non-performing loans.

Germany's KfW is the top-ranked bank in the study, followed by France's Caisse des Depots et Consignations and Holland's Bank Nederlandse Gemeenten. Despite European government debt woes, European banks occupy the top nine places. Some foreign banks cited in the study operate in Arizona, such as Spain's BBVA, No. 17 overall, parent of BBVA Compass Bank.

- Most small-business owners are trying to run things efficiently, but many are overlooking certain money-saving tips. Among them: using direct deposits for payroll.

Companies face costs of up to $2 to write and process each paper check, compared with 35 cents or less for direct deposits, according to NACHA, the Electronic Payments Association. That can equate to savings of around $40 per employee annually, assuming biweekly pay.

A recent NACHA survey of small-business owners revealed that 66 percent don't use direct deposit for payroll. It's especially rare for many companies operating in fields such as repair/maintenance, food service, retail and construction.

Of companies that offer direct deposit, only one in three can point to 100 percent employee participation. Direct deposit also can help by sparing business owners the need to visit their banks as much and by reducing the volume of paper checks to vendors.

by Russ Wiles The Arizona Republic Aug. 28, 2011 12:00 AM



Mortgage rates are low, but no rush