Today's falling interest rates and shifting stock market prices mean both opportunities and potential problems for people seeking mortgage financing— and the economic climate is changing so fast that it's not always easy for borrowers to tell which is which, says local mortgage banker David Koontz.
For example, Federal Reserve Chairman Alan Greenspan has adjusted interest rates downward several times in recent months, producing a favorable scenario for purchasing property or for refinancing existing mortgage loans. Depending on the borrower's financial status and the type of loan sought, current mortgage interest rates can be as low as 6-1/2%.
That's particularly good news for homeowners who want to refinance loans obtained when rates were higher. In fact, advises Koontz, head of the Key West office of Realty Mortgage Corporation, refinancing can be an excellent solution for homeowners who want to pay off high-interest credit-card debt or personal loans, or who find themselves facing an economic squeeze.
"My company has loaned more than $31 million locally since we opened our doors late in 1995, and approximately 40% of that amount was in refinancing," he says. "As a rule of thumb, refinancing is a viable option whenever rates drop a point or a point and a half lower than the rate of the original loan."
However, he warns that consumers should be careful not to use their homes as extension of their checking accounts.
According to the National Association of Realtors, at the end of the first quarter of 2001, the median existing home resale price was 4.7% above the previous year's. That means home prices rose faster than inflation and incomes. However, Scott Burns of MSN Money reports that it also means homeowner collateral and borrowing power are outstripping consumers' ability to pay loans back.
"While refinancing is a powerful tool, it's not the blanket solution that some mortgage companies claim it is," says Koontz. "Potential borrowers should look at their overall financial situation when they consider it— and be wary of any company that doesn't advise doing that."
To assist people interested in refinancing, he is currently offering free confidential mortgage analyses and free credit reports to help them determine whether refinancing is right for them.
The drop in interest rates, however, is only one economic trend affecting the mortgage business in Key West and the nation. The current national financial downturn, combined with corporate downsizing and a burgeoning entrepreneurial climate, have spawned a fast-growing crop of self-employed business people— whose unconventional financial situation often makes it difficult for them to get home loans.
"Banks generally prefer not to work with self-employed or credit-challenged borrowers," says Koontz. "Helping those clients takes a lot of work— and most banks prefer conventional, matrixed loans. They rarely care to explore the wide variety of creative solutions that exist in today's financial marketplace."
In fact, while Realty Mortgage is a national company, Koontz has built his Keys business on providing financing solutions for self-employed people and those who don't meet the credit standards required by conventional loan applications. Particularly popular with Keys borrowers, he reports, is a simple "stated income, stated asset" loan.
To take advantage of the national trend toward individual entrepreneurship, Koontz has recently expanded his business to offer commercial financing solutions for business owners who have difficulty getting traditional mortgage financing for properties such as restaurants, guesthouses, condos and storefront/apartment structures. He also has added a new mortgage banker, Victoria Brown, to the Realty Mortgage team.
"Today's economic climate is challenging for both borrowers and lenders," Koontz sums up. "No matter which side of the fence you're on— and I've been on both— it's vital to pay attention to financial trends and stay open to creative solutions."