Refinancings May Slow as Economy Grows

LOW mortgage rates are spurring many Americans to refinance their loans - but the trend may not continue for much longer.

Rates for 30-year fixed mortgages have started to climb slightly in past weeks. The national average is 7.12 percent, up from a 6.74 percent low in October, according to the Mortgage Bankers Association (MBA) in Washington.

The Federal Home Loan Mortgage Corporation (Freddie Mac), a secondary lender in McLean, Va., reports that nearly two-thirds of its loans have been refinancings this year. In previous years, about 25 percent of Freddie Mac loans were refinancings. Robert Van Order, chief economist at Freddie Mac, does not expect this trend to continue.

``I think applications [for refinancing] will drop by the end of the year,'' Mr. Van Order says. Although he predicts that rates will remain low in the short term, Van Order says refinancing tends to be driven by more dramatic rate changes.

The MBA reports that more than $1 trillion in mortgages will be taken out this year. Fifty-six percent of these will be refinanced mortgages. The MBA anticipates that $850 billion in mortgages will be taken out in 1994, with only 35 percent from refinancing.

``You're always going to have a portion of your business that is going to be refinancings,'' says Joe Hock, sales manager at Citibank in Framingham, Mass. But more new mortgages are a result of an increasingly stable economy, Mr. Hock says.

This year, about 60 percent of Citibank's mortgages have been refinancings, Hock says. He predicts that refinancings will drop back to about 30 percent next year as the economy improves, encouraging more housing starts and new mortgages.

Despite a predicted slowing down of this type of mortgage, ``it's a good time to refinance,'' says Jeff Page, vice president of Shawmut Mortgage Company, based in West Hartford, Conn. Mr. Page says the number of Shawmut's refinanced mortgages has at least doubled since two years ago, and now comprises about 70 percent of the company's total mortgages.

Many refinancing programs offer loans without upfront costs (zero points) or closing fees, which cut costs for customers, Page says.

``Most people who took out a mortgage two or three years ago should think about refinancing,'' Van Order says. Generally, borrowers who refinance are those who have fixed-rate mortgages as high as 10 percent, he adds.

To determine if refinancing is the best option, mortgage holders should calculate the difference between their present monthly payments and those under a new mortgage and consider how many years they have left to pay. Sometimes, the savings can be substantial.

For example, a 30-year fixed-rate mortgage on $100,000 taken out two years ago at 9.5 percent has a monthly payment of $841, Page says. Changing to a 15-year fixed rate mortgage at 7.125 percent would result in a monthly payment of only $65 more and save the homeowner $120,000.