If you're one of the hundreds of thousands of American homeowners with substantial equity in your property or an existing, above-market-rate mortgage, you could be part of a mass movement this spring -- the 1985 refinancing boom.
Mortgage-market economists and lenders say the logic behind the coming rising tide is powerful:
* Both fixed-rate and adjustable loans are at or approaching their low points in the current cycle. The 12 1/2 percent fixed rate or 10 3/4 percent adjustable loans widely available today could look very attractive a year from now.
* Large numbers of owners are still saddled with mortgages that make no sense. The discount "graduated-payment" mortgages that played such a large role for new home buyers in the 1981-1982 market, for example, are a pain in the neck for many of those consumers today. A home builder's graduated payment mortgage that offered new home buyers an enticing 10 percent starting rate in 1981 might well be fixed in concrete at 14 1/2 percent today. Worse, the principal balance on the mortgage is likely to be higher than it was three years ago, thanks to the magic of "negative amortization" (deferring interest charges and adding them to the mortgage amount).
* Many owners sitting with one-year adjustables never have been truly comfortable with them, no matter how many "caps" and consumer protection features they have in the fine print. The opportunity to refinance into a 15-year guaranteed rate near 12 percent, with little or no penalty, seems a safer bet for them than gambling on the unpredictable ups and downs of the money bazaar.
* Investment opportunities, childrens' college costs, debt consolidation and big-ticket luxury item purchases are all encouraging high-equity homeowners to turn a chunk of their real estate assets into tax-free cash, by refinancing their existing mortgage. Rather than using higher-cost second mortgages or deeds of trust, the owners are calling mortgage bankers and savings and loan associations for large new replacement loans.
There's no question that it's the right moment in time for a lot of people, especially those with loans three and four years old, said Chicago-based James Christian, chief economist for the U.S. League of Savings Institutions.
Like many economists, Christian believes rates won't fall much more -- perhaps another 0.25 to 0.5 of a percentage point in the coming eight weeks -- before they begin to stimulate significant new economic activity and head back up again.
"If you've been waiting for a 'window' in rates before refinancing," says Christian, "this looks like it."
Growing numbers of homeowners evidently are coming to the same conclusion. Reports from lenders in major markets around the country indicate a surge in inquiries and applications for refinancing.
Kathy Baker, a Virginia loan officer for Goldome Realty Credit Corp., a large New York-based mortgage banker, said the tempo of refinancing activity "is really beginning to take off. You'd be amazed at the range of people" who are jumping into the market to latch onto low rates.
Baker said they include everyone from owners in upper-bracket neighborhoods looking for $100,000 cash from their houses to young married couples fed up with the 14 and 15 percent loans they've been stuck with since 1981.
One couple who contacted Baker last week was carrying a loan that had escalated to 17 1/2 percent -- a graduated payment legacy of 1982 -- and was desperate to find a way to unload it.
Another couple with a graduated payment plan found they could save $200 a month by refinancing into a fixed-rate loan $10,000 larger than their present one, despite having to pay more than $3,000 in FHA insurance premiums up front.
But not everyone fits so easily or neatly into refinancing solutions, Baker and other lenders caution. Refinancing isn't economical for large numbers of owners who'd like to get rid of above-market or risky mortgages.
To calculate how well you'd fare in a refinancing, Baker advises to ask yourself:
* Will you have to pay your current lender any cash prepayment penalty for opting out ahead of schedule? Some states limit or prohibit such penalties, but others allow lenders to exact substantial fees, such as three months' interest, on early payoffs.
* How high will the closing and origination costs be? They're likely to amount to several "points" (one point is equal to 1 percent of the loan amount).
* Are the total transaction costs outweighed by the lower monthly payments you'll be forking over, or by the peace of mind you'll get? How many months or years will it take for you to recoup those transaction costs? Are you planning to stay in your refinanced home long enough to make it really pay?
If the numbers add up -- as they do at least temporarily for large numbers of owners -- you're ripe for refinancing in early 1985.