|
Where are Mortgage Rates Headed?
Even though rates are still historically low, it's hard not to be just a little nervous about mortgage rates. The average rate for a 30-year, fixed-rate mortgage rose to 5.98% last week, a six-month high, according to mortgage giant Freddie Mac. That's still fairly low by historic standards. But in some high-cost regions, even a small rise in mortgage rates could price some borrowers out of the market.
Other rates are rising higher, too. Rates on one-year, adjustable-rate mortgages averaged 4.77%, the highest since May 2002. The average rate for a five-year, hybrid adjustable-rate mortgage rose to 5.48% last week, a six-month high. Hybrid ARMs offer a low fixed rate for a set amount of time before adjusting.
So what's a potential borrower to do? Smart moves to make now:
Remain calm. Economists expect rates on 30-year, fixed mortgages to hover around 6% for the rest of the year, so if you're in the market for a home, you still have time to look around. Borrowers who lock in sooner as opposed to later will probably be rewarded but says there's no need to panic. "If you have to wait six months, it's not like interest rates will be 8%," he proclaims.
If you're in the market for a large mortgage, look for lenders that have increased their borrowing limits for conforming loans. Rates on conforming loans, which are loans that lenders can sell to Fannie Mae and Freddie Mac, are a quarter to three-quarters of a percentage point less than those for jumbo loans.
Every year, Fannie and Freddie adjust the limit for conforming loans to reflect home values. Because of skyrocketing home values, analysts believe they'll raise the limit to about $400,000 for 2006, up more than 11% from the 2005 limit of $359,650. Fannie and Freddie repackage the loans as securities and sell them to investors.
So if you're in the market for a $400,000 loan - and in some parts of California, that will buy you a one-bedroom condo next to a power plant - looking for a lender with a higher conforming-loan limit could save you money. Of course, that's just one thing you should consider when loan shopping: In a competitive market, many factors, such as closing costs and title insurance, may reduce your costs.
Don't take big risks to lower your rate. Adjustable-rate mortgages don't reduce your monthly payment that much now. On a $200,000 mortgage, for example, a five-year, hybrid ARM would save you about $60 a month more than a fixed-rate loan.
The narrow spread may drive some desperate borrowers to take loans with low initial "teaser" rates and several payment alternatives. With these mortgages, borrowers have the option of making interest-only payments or a minimum payment that's even lower. These types of mortgages provide a useful cash-management tool for sophisticated borrowers. But if you're using an option ARM to buy a house you couldn't afford with a conventional mortgage, you're at risk. Eventually, you'll be required to pay both the interest and the principal, and your payment could spike much higher.
The narrowing difference between adjustable and long-term mortgages has dampened enthusiasm for ARMs. Last week, they accounted for 29.8% of mortgages, vs. 34% in December 2004, according to the Mortgage Bankers Association. Still, hybrid ARMs continue to be popular with borrowers who don't plan to stay in their homes for very long.
aa
Email Page | Print Page
|
|
|
