With interest rates at record lows, mortgage refinancing is absolutely booming, in some cases accounting for 70 percent of the overall mortgage activity. Experts report that the trend is here to stay, at least until the end of the summer.

Wayne Walker, senior vice president of residential lending at People’s Bank in Bridgeport, said March has been the bank’s biggest application month since October of last year.

“I’d say the activity was atypical, but I don’t know what’s typical anymore,” said Walker. “In a purchase market February or March are usually a little slower than the spring months, but our total applications are the highest they’ve been in months.”

While Walker said March isn’t going to break any records, it will be the bank’s fourth-best month in terms of application activity in history, with August of 2002 being the best month.

Of the activity in March, 85 percent is from refis.

In a purchase market, according to Walker, refis account for much less – roughly 25 percent – but in 2002 refis covered 75 percent of the total market, making it the biggest mortgage market in history.

“As the refi boom continues, the staffs have their backs to the wall from this long market we’ve been in,” he said. “We’re getting a lot of business. But, all it takes is a quarter percent or three-eighths jump in rates and you’ll see a big drop in refis. Last year rates started to climb and the percent of refis in the market went from the 70s down to the 30s in April. It doesn’t take much.”

Walker reports that from the end of November 2002 to the end of last month, the 30-year fixed rate dropped three-quarters of a point.

“In 90 days it dropped 75 basis points and another eighth of a point in March, so although people might have missed the boat the last time rates were down in the 57/8 range, they jumped on it this time and they’re jumping in again for a second or third time,” said Walker.

Peter Spalthoff, executive director of the Connecticut Society of Mortgage Brokers, said his broker members are “busier than one-armed paper hangers” with all of the recent refi activity.

“I’ve been at this for 32 years and have never seen rates this low, and I don’t see any real end in sight. There is still a lot of pent-up refinancing to be done. There’s folks still out there with 7 [or] 8 percent rates who are still looking to refinance, and there are a whole myriad of reasons why they should,” said Spalthoff.

“Refinancing is extremely popular right now and I just don’t see the bubble bursting anytime soon,” said Spalthoff.

Spalthoff believes part of the reason for this is that people are becoming increasingly versed in what a mortgage is.

“In the past you got married, bought a house, had kids and got a mortgage It was never something you discussed. But now with the average lifetime of a house being less than five years, people are reading about refinancing their mortgage, talking about it, learning how to use the equity of a house, how to refinance,” he said.

“This year the amount of refis has been unbelievable, at least in this first quarter. I had expected them to slow down because 2002 was just an absolutely crazy year for refinance. It’s probably been the majority of production for the year so far, and definitely was for last year,” said William Calderara, senior vice president of Ridgefield Bank.

Calderara noted a slight increase in mortgage rates this week, which he believed was coinciding with the war in Iraq.

“But by no means are rates high,” he said. “It’s hard to call a 30-year fixed rate below 6 percent ‘high.'”

He chalked the increase up to uncertainty, remarking that whenever there is an uncertain event, such as the current military conflict, the rates tend to jump up a little bit.

Beneficial Cycle

Refis typically work in cycles, and the current one appears to be one of the longest on record. Although some accounts differ, most of those interviewed agreed that the current cycle took an upswing at the beginning of 2001, but didn’t really pick up until the end of 2001 when the Federal Reserve lowered interest rates several times. The cycle has continued, with refis continuing to remain popular and increase through all of 2002 and into 2003.

The last such cycle started in 1992 and lasted into early 1994 before it slowed down.

Calderara said an interesting aspect to the current boom is that many consumers are refinancing their mortgages as many as four times.

“I don’t really remember seeing the same customers refi muliple times within a 12-month period before, but this year I’ve had some customers barely get through closing and call right back,” he said.

The types of loans involved in the current refi boom are basically a mix of 15- and 30- year mortgages, but experts report more 15-year mortgages than they have seen in the past.

“In this latest round we’re seeing a lot more 15-year fixed rate mortgages,” said Calderara, noting that with the current interest rates a homeowner can jump down to a 15-year loan from a 30-year loan with almost no change in payments.

As far as the types of consumers taking advantage of the current rates, Calderara said, “No one hasn’t benefited from this refinancing cycle.” Typically, the larger the loan, the greater the decrease in payment – and, therefore, the greater benefit.

“Everyone is taking advantage of this,” said Calderara.

Most experts are quick to note, however, that home purchases are remaining strong, despite the fact that refis are accounting for up to 70 percent of the market in some areas of Connecticut.

Typically, in a more normal, purchase-driven market, refis account for about 20 percent of the volume. In the refi boom of the early 1990s, refis held between 70 and 80 percent because the number of home purchases wasn’t as high.

Calderara said if rates continue to climb then the refi boom will “turn off like a faucet,” remarking that those who haven’t yet taken advantage of the low rates will “have missed the boat.”

He believes, however, that the current rate should continue through at least mid-year, if not until the end of 2003.

“This certainly has been the most sustained refinancing market in 20 years,” said Richard Tracy, president of Campbell Mortgage in West Haven. “Clearly, what has sustained it is the continuing decrease in interest rates.”

Tracy also was quick to point out that it has become easy for someone to get a mortgage financed, encouraging homeowners to refinance and continue to refinance. He noted that consumers have been taking advantage of the fact that their appraisals last for 12 months, often refinancing more than once during the same year.

Tracy said his own business hasn’t been so affected by the current boom.

“Campbell Mortgage has been in business for 10 years and those of us who work here have been in the business for much longer than that. One thing I learned very quickly was that you can’t live and die by refis because inevitably they go away. If you let them get more than half of your business, you’re in trouble,” he said.

Refis make up about 40 percent of Tracy’s overall business, with the bulk of the activity coming from home purchases.

“During a boom a business has a tendency to staff up to that level of activity, and once the boom goes away, what are they supposed to do with those extra people?,” said Tracy.

Despite the fact that Tracy believes the boom will end this year, he said the activity has been good for the economy.

“[The boom] has definitely caused more people to go to 15-year loans, which is good for the economy and starts these folks developing equity.”

He added that many baby boomers are likely looking to be getting shorter mortgages, such as the 15-year, fixed-rate variety, as they are the first generation that will retire with significant mortgages in place.