Homeowners to Gain From Drop in Interest Rates

Hundreds of Ventura County homeowners have become beneficiaries of sinking mortgage rates, in many cases positioned to save thousands of dollars a year by refinancing at rates that have fallen to a three-year low.

Lenders report that homeowners throughout the county are refinancing loans that were taken out in the early 1980s at rates of 13% and 14% and, in effect, trading them in for loans with rates of less than 10%. Nationwide, the rates have fallen to an average of 9.56%.

“Some people are even moving out of variable-rate mortgages into fixed rates that are higher than what they’re now paying,” said Allan W. Stone, senior vice president and head of real estate lending at Ventura County National Bank. “They want the security of locking in the current low rates.”

Stone said his bank started getting inquiries about refinancing about a month ago, when word of the lower rates began spreading among homeowners in the county. His bank, one of the county’s major real-estate lenders, is offering 30-year fixed-rate mortgages at 9 3/4% plus one point. A point is an additional charge of 1% of the amount of the loan.

“The general rule of thumb is that it’s worthwhile to get a new loan if there’s a two-point spread between your old loan and the current rate,” Stone said. “When rates get into the single digits as they are now, people start becoming aware of that.”

On a mortgage of $188,000--assuming a 20% down payment on a house that sells for Ventura County’s median price in November of $238,051--the monthly payments on an 11 3/4% mortgage would be $1,897.

The payments on a 9 3/4% mortgage would be $1,615, or $282 less per month. That amounts to an annual savings of $3,384.

If the mortgage rate were higher or the spread between the old and new loans were larger, the savings would be even greater.

Doug Harder, manager of the Oxnard branch of Weyerhaeuser Mortgage Co., said he believes that it is advantageous to refinance when the spread between the old and new rates is as little as 1 1/2%. “Over a year, the savings will make the move worthwhile,” he said.

Harder said he is working late into the night, dividing his time between processing more refinancings and new loan applications. Throughout Southern California, Weyerhaeuser processed 500 mortgages last week--a sharp increase in volume, he said.

Weyerhaeuser charges 9 1/2% plus two points on fixed-rate mortgages. The company, a subsidiary of the lumber and house-building giant, offers even lower rates on seven-year mortgages, which can be rolled over into new loans for a $250 fee.

“A lot of my business involves getting people out of negative-amortization mortgages,” Harder said. “In exchange for keeping the payments low, some lenders actually increase the amount of these people’s loans every month. This is a great time to get out of that kind of a deal.”

Despite the benefits some homeowners are receiving from lower rates, most real estate experts and lenders hesitated to predict that the rates will trigger a comeback in the housing market. The Federal Reserve Board’s action Tuesday in lowering the discount rate charged on loans to banks may help lower rates further, but only after a while, some experts said.

“The Fed’s action will help the economy in general,” said Doug Moe, co-owner of Century 21 Realty Sales in Ventura. “It’s definitely a positive development and will affect those who are refinancing first of all.”

He also said it would help some buyers by increasing their ability to afford a house and qualify for a loan.

But, Moe added, negative factors such as the slow economy and the Persian Gulf crisis must be resolved before a strong housing resurgence can be expected.

Lower rates may be a mixed blessing for prospective buyers, said Joe Brown Sr., president of Brown Realtors of Thousand Oaks and Westlake Village.

“As the rates come down, prices will tend to stabilize,” he said. “Most buyers and sellers think in terms of monthly payments. The lower rates will, in many people’s minds, amount to price reductions.”

Even though builders and other sellers have slashed prices by $100,000 or more for some houses, the California Assn. of Realtors reports that prices in the county are too high for the vast majority of Ventura County’s families to afford.

The county’s affordability index, representing the number of households that can qualify to buy a new house with a 20% down payment, was the worst in the state in September, the last month tracked by the association.

At the county’s median house price of $241,290 that month, a household needed an annual income of $78,859 to make the required monthly payments of $1,971. Only 12% of Ventura County families could afford this. The index was even lower a year earlier, when house prices were higher.

According to TRW Real Estate Information Services, 772 houses were sold in Ventura County in November. That represents a decline of more than 11% from October and of more than 26% contrasted with November, 1989.