Lower interest rates and heavy demand for housing dollars are producing important new wrinkles in the home-mortgage game this spring.
Some of them haven't been widely publicized yet, but most offer intriguing opportunities for sharp-eyed refinancers and buyers. Some may already be offered by local lenders; others may be on the way. Here's a quick overview: "Pre-emptive," low-cost refinancing plans. Probably the most attractive new deal available in the mortgage marketplace, "pre-emptive" refinancing represents that rarest of economic events: a mortgage idea that makes sense for the consumer and the lender.
It works like this. Say you're one of the millions of American homeowners with an existing mortgage in the 12 1/2-to-14 percent range. From the point of view of the mortgage-lending industry, you are the good news-bad news phenomenon of 1986. In the words of one S&L executive, you are likely to develop the "mortgage-itch syndrome" during the coming three to 12 months.
You are, in short, a prime candidate for refinancing. You're progressively likely to want to switch to a long-term, fixed-rate loan, perhaps at a single-digit note rate. What's wrong with that?
Plenty, if you're a lender. Your stable, high-rate mortage-money stream will be wiped off the lender's ledgers. Your business may shift to another lender, unless your present institution comes up with a competitive cut-rate deal.
One response has been the proposition being offered quietly to randomly selected mortgage borrowers of Virginia's largest savings and loan association, the $1.4 billion-asset Dominion Federal. For a flat fee of $100, Dominion Federal has allowed selected homeowners to decrease their interest rates to the low-to-mid-10 percent range. The amount of a borrower's loan doesn't change, nor is there any formal refinancing process.
Borrowers who want to lower their rate to 10 1/4 to 10 1/2 percent, for example, simply have to say yes and pay $100 for the paperwork. More than 97 percent of those contacted have said precisely that, according to Dominion Federal Chairman William L. Walde.
Dominion Federal makes no bones about why it's begun the program. "We're trying to hold on to good customers," said Walde. "We're trying to create a situation where it's in their economic interest to stay with us."
The economics look attractive, indeed. For a 12-percent mortgage borrower to refinance with another institution this spring might cost 4 to 5 percentage points, when all fees and closing charges are toted up. That means $4,000 to $5,000 on a $100,000 loan.
The economics look pretty good to the lender, as well. Rather than being forced to offer refinancing rates that may prove to be profit-eaters, Walde is locking in solid customers at fixed rates designed to keep them for the long term. Compared with offering 9 1/2 to 9 3/4 percent fixed-rate loans to newcomers, the alternative of providing 10 1/4 to 10 1/2 percent to established, "seasoned" clients makes sense.
Here are some other money-saving trends being introduced by lenders this spring to get -- or hold on to -- mortgage borrowers: "No-points" conventional fixed-rate home loans. Lenders in at least several major metropolitan markets are wooing borrowers who prefer not to fork over 2 to 4 points in cash fees at closing. The no-points mortgages normally carry higher note rates than competitors who are charging fees, but their annual percentage rate (APR) can be superior.
If you're likely to own the house you're financing for only two to three years, it may be advantageous to not pay out points at closing. That's because the effect of cash points on your true rate -- your APR -- is magnified when you pay your mortgage off early. A point that's computed at 0.125 percent over a 30-year term may represent as much as 0.5 percent if you prepay within 24 months. Deep discount "margins" on adjustable-rate mortgages. Some lenders are pushing adjustables aggressively by slashing their profit margins -- the amount they tack on beyond the federal index rate -- to 2 percentage points or less. That's down from the 2 1/2 to 3 points common last winter. If you spot one-year adjustables carrying discount margins and note rates in the 8 percent range, annual rate caps of 2 points and lifetime caps that don't exceed 13 percent, take a look at them. They may be among the best mortgage bargains this spring.