The New York Times
November 30, 2003

For Home Loans, A Steady Market
By EDWIN McDOWELL

The residential mortgage market continues to be, by historic standards, exceptionally welcoming to borrowers, despite having poked above the 6 percent mark in the benchmark 30-year fixed-rate loan during the summer. It has fluctuated around that level since then, and last week it was at 5.89 percent.

While there have been only moderate shifts in rates over recent months, there have been other changes in the mortgage market with long-term implications for consumers. The great refinancing boom of recent years appears to be winding down. Adjustable-rate mortgages, typically less popular at a time of low rates, have stirred to life, moving from 14 percent of the market in the first quarter of this year to 26 percent in October.

The most visible change in the mortgage landscape is the steep drop in the share of mortgages that are refinancings. Refinancings accounted for 75 percent of all new mortgage loans as of June, according to Frank Nothaft, the chief economist of Freddie Mac, but refinancing applications now account for less than 50 percent and are likely to fall to about 33 percent in 2004. "That is still a lot of refinances, Mr. Nothaft added, "but not compared with the past few years.

The drop in refinancings, economists and mortgage brokers say, is attributable not only to the increase in interest rates, however modest, but even more to the fact that many homeowners have already refinanced their mortgages -- sometimes several times. In 2001 and 2002, refinancings totaled about 25 million loans, according to Mr. Nothaft, the Freddie Mac economist.

Interest-Only Loans:
Lower Payments, Entirely Deductible

A type of loan that is becoming somewhat more common is the interest-only mortgage. Such mortgages enable borrowers to pay only interest each month and none of the principal. But at the end of the interest-only period, the borrower has to pay the principal over the remaining term of the loan.

Michael L. Moskowitz, president of Equity Now, a Manhattan mortgage lender, said interest-only mortgages "account for maybe 5 percent of our business, but most of those loans are in six to seven figures."

Not all interest-only mortgages are in the stratosphere. Deborah and John Murphy of Manhattan, she an interior designer and he a lawyer, took out a five-year $250,000 interest-only mortgage in June with an interest rate of 4.875 percent to buy a condominium in Manhattan. Their loan is saving them $345 a month, compared with a five-year $250,000 conventional loan, which at the time they took out their mortgage carried an interest rate of 5.125 percent.