Refis Boom on Low Mortgage Rates

Danny Kofke, a special education teacher and father of two who lives just outside of Atlanta, Ga., saw interest rates drop and decided to make his move. Twice.

Kofke refinanced his mortgage twice in the past three years, switching from a 30-year fixed-rate mortgage at 6.5 percent to a 20-year mortgage at 5.5 percent in the spring of 2008 and eventually to a 15-year loan with a 4.5 percent interest rate in the spring of 2009. That's a 55% decrease in his mortgage rate.

"We have to pay an additional $10 a month compared to the 20-year loan but will have our house paid-off four years earlier," Kofke explains. Our main goal is to be completely debt-free as soon as possible."

He's not alone. Low interest rates are spurring a boom in mortgage refinancing as homeowners look to lower their mortgage payments to help reduce their monthly expenses. According to a recent Freddie Mac report, most borrowers who are refinancing in the face of stupendous rate drops are opting for shorter-term, fixed-rate loans.

Essentially, homeowners are increasingly betting that interest rates will soon rise.

Home loan refinancing activity jumped more than 17 percent in the week ending August 13, compared with the previous week, to reach its highest level in 15 months, according to the Mortgage Bankers Association's Refinance Index.

"We are on the verge of another mini refinance boom," says Richard J. Martin, senior vice president at DE Capital, a joint venture between Wells Fargo and broker Prudential Douglas Elliman. Martin expects low rates to last through the fall, a time when interest rates are historically favorable.