Real Estate

Real Estate: Refinancing isn’t easy or simple

JESSICA DINAPOLI PHOTO | Doug Van Slkye from Ulster Savings Bank is doing booming re-finance business now.

Mortgage interest rates have hit historic lows, but not many homeowners can snag them and save money on their monthly payments by refinancing, according to mortgage brokers and bankers.

Because the Riverhead and North Fork housing markets took a hit in the recession and ensuing economic downturn, the home appraisals required for many mortgage refinancings are coming in too low and failing to meet bank requirements, said Bill Pisani, a mortgage broker at Worldwide Capital Mortgage Corp. in Bay Shore. That means many people have lost significant equity in their homes, a roadblock that stands between them and a chance to secure today’s low rates, he said.

Mr. Pisani, whose client list spans Suffolk County, said between 70 and 75 percent of his clients are denied re-fi’s.

Chad Vanderslice, a mortgage broker with Mortgage Master in Westhampton Beach, offered this example: If a couple bought a home for $500,000 a few years ago and put down 20 percent, or $100,000, they still have a mortgage of close to $400,000. But their house is no longer worth $500,000; its value could be closer to $350,000.

Since 2007, real estate values have fallen an average of about 30 percent, or between 5 and 10 percent per year, said Barry Novick, longtime North Fork real estate broker and senior vice president at the Corcoran Group in Southold.

“The East End, especially the North Fork, has followed the national trend of decline,” Mr. Novick said.

That trend means a significant loss of equity for the couple in the above example. As a result, their loan-to-value ratio, a figure showing how much of their property is financed, is close to 95 or 100 percent. That’s one measurement in which lower is better.

In worst-case scenarios, the loan-to-value ratio could be over 100 percent, meaning that the mortgage is of greater value than the property. In the slang of the day, the home is “under water.”

“That would be 100 percent financing, and they couldn’t get it,” Mr. Vanderslice said. His re-fi denial rate is lower than Mr. Pisani’s, about 40 percent.

An loan-to-value ratio of 80 percent is a number most banks feel comfortable with, Mr. Vanderslice said.

Once the loan-to-value exceeds 90 percent, homeowners have to pay personal mortgage insurance, Mr. Vanderslice said. Mr. Pisani said mortgage insurance, which is calculated into refinanced and some first mortgages, has increased in price from .55 percent of the loan total to between 1.05 percent and 1.55 percent.

In many cases, mortgage insurance is a deal-killer, knocking down or even wiping out the monthly savings refinancing can bring, Mr. Pisani said. Plus, homeowners still have to pay closing costs on a refinanced loan.

New York State has long had some of the highest closing costs in the country — about 4.5 percent of the total loan, Mr. Vanderslice said. That means a $400,000 loan could cost about $18,000 to close, he said.

Douglas Van Slyke, a mortgage consultant at Ulster Savings Bank in Riverhead, cautions that homeowners should not rely on simple formulas to determine whether or not a reworked mortgage is right for them.

“It’s a complex formula and there is no one-size-fits-all,” he said. “It doesn’t work that way. If you can get a lower payment, that in and of itself is enough.”

Mortgage interest rates recently hit levels below 4 percent because of the continued economic stagnation, and turmoil in Europe has only added more downward pressure, Mr. Van Slyke said.

He said that during last year’s mortgage re-fi boom, rates were between 4.25 and 4.75 percent, and that some people who borrowed last year have returned recently to try to lower their rates again.

Mr. Van Slyke is busy with refinances, especially because the purchase and construction markets are soft.

According to Mr. Pisani, there are some options for homeowners without enough equity for a refinance, or whose loan-to-value ratio is off. One is a Federal Housing Authority Streamlined Loan, which usually does not require an appraisal, according to a government website. An appraisal can show a decline in the value of the home in recent years, pointing out eroding equity and creating a major sticking point in most re-fi’s, Mr. Pisani said.

Another option, according to Mr. Vanderslice, is a Home Affordable Refinance Program (HARP) loan, designed specifically for homeowners who are under water, or whose loan-to-value is greater than 105 percent. That program, like many other re-fi’s, comes with strict credit requirements for borrowers.

To Mr. Pisani, the re-fi situation is completely unfair. It seems like only longtime homeowners — older people with established careers and grown children — are able to secure lower monthly payments on a home.

“Then you have the people in the middle, the people who their bought houses five years ago, and if they put 10 percent down, it’s gone and their house is not worth what they bought it for,” he said.