Mortgage rates near record lows

Declining interest rates have boosted market for homeowners.

Homeowners who missed the refinancing boom last November are getting a second chance. Buyers looking to jump into the market also have an incentive.

That's because mortgage rates, which had climbed as high as 7.25 percent on a 30-year fixed rate just three months ago, are dropping fast. Local lenders in the middle of last week offered rates of 6.5 percent on a 30-year loan and 6 percent on a 15-year loan. Those figures could drift even lower.

Local lenders admit they are surprised at the trend.

“I think the sentiment going into the year was that they were going to be in the mid- to high 7 percent range through the year,” said Bob LaClair, senior vice president of mortgage lending for Fifth Third Bank (Northwest Ohio). “The stock market has not played out the way I think everyone thought it would.”

The continuing poor showing of the stock market, and such shocking news as last week's announcement that WorldCom, Inc., had hid nearly $4 billion in expenses, has meant investors are seeking safe havens to park their money.

Most often, those havens are in the bond market, which pushes bond prices up and yields down. Mortgage rates, tied to bond yields, then trend downward, said Frank Nothaft, chief economist of mortgage giant Freddie Mac, based in Washington.

“And, the fact that the recovery appears to be more tepid in the second quarter of this year means that it's unlikely the Fed will push interest rates up anytime in the next couple of months,” he said. Just last Wednesday, Federal Reserve policymakers decided to keep U.S. interest rates unchanged.

Mortgage rates nationally are close to the three-decade low set last November as investors switched money into government debt, sending yields and home loan rates lower. Average rates found in a Freddie Mac survey last week were 6.55 percent for a 30-year fixed-rate loan, down from 6.63 percent posted the previous week, and 5.99 percent for a 15-year loan, down from 6.08 percent. The national numbers include points but the local numbers do not.

“I suppose you could call them scandalously low rates, because that's what they are being driven by - the WorldCom scandal,” said Keith Gumbinger, vice president of the mortgage research firm HSH Associates.

All of which is good news for people thinking of refinancing or buying a house. Locking in at a rate today, either for a new home or refinancing old debt, could save a great deal of money.

At the end of March, when rates hit 7.25 percent, a 30-year fixed-rate mortgage with no points on a $100,000 loan would have cost someone $682 a month in principal and interest, according to loan officer Don Starbuck of Colony Mortgage in Holland, Ohio. That same loan today, at 6.5 percent, would cost $50 a month less. A 15-year loan for the same amount would mean a monthly payment of $844 at 6 percent, down from $885 three months ago.

Those savings not only should help the housing industry, but should give a kick to consumer spending as people have more monthly income to freely spend, economists said.

“We're seeing a lot of purchase activity and a lot of pre-qualifications,” said Michael Rose, executive vice president of Sky Bank in Toledo. “A lot of people get pre-qualified and then go home shopping. That activity is up as compared to last year.”

Still, local lenders are not convinced the lower rates are going to mean another refinancing craze.

“One, they're not aware that the rates have dropped this low or two, they've already done it,” said Mr. Rose.

“I'd say we're right about at 70 percent of our business is purchases or pre-approvals,” said Ron Patton, vice president of lending for the Toledo Area Catholic Credit Union.

Freddie Mac's Mr. Nothaft said refinancing applications are picking up nationally, running about half of all loan applications, so he predicted there will be a “refi boomlet” in coming weeks. In November in northwest Ohio, refinancings were accounting for more than two-thirds of the activity of many area lenders.

Nationally, mortgage rates hovered near 7 percent for 30-year loans through mid-March, when they began to tumble. In mid-November, the rate sunk as low as 6.45 percent, according to Freddie Mac. For 15-year loans, rates for the past year generally have been over 6 percent, slumping to 5.94 percent in November. Northwest Ohio rates tend to be about a quarter to a half percentage point higher than the national averages.

As for where rates go from here, local lenders are cautiously optimistic.

“I do not see anything that's going to put rates up immediately,” said Sky Bank's Mr. Rose. “I'd say it's a pretty good buyer's market right now.”