Mortgage interest rates, which have zigged down and zagged up during the past 12 months, have zigged down again this summer, sparking a new flurry of inquiries and loan applications.
This time, though, many of the customers are looking to buy a home, often a first home, rather than refinance an existing mortgage, as was often the case last winter, the last low point for interest rates.
Buyers, particularly those nearing retirement, are also increasingly choosing 15-year mortgages instead of the more traditional 30-year loans, and they are spurning the lowest rates -- those offered on one-year-adjustable mortgages, or ARMs -- for higher but less volatile fixed rates.
In choosing fixed-rate loans over adjustables, however, borrowers may be missing out on the savings they could achieve if interest rates flatten or fall further. Indeed, homeowners who took out adjustable-rate mortgages in the 1980s have watched their monthly payments drop significantly in the last year.
And should adjustable rates rise, even to levels higher than today's fixed rates, the savings in the earlier years of the adjustable loan may still keep borrowers ahead.
R. Frank Gooden, owner of First Merchant's, a mortgage broker in Brooklyn, N.Y., said that adjustable rates could benefit not only borrowers who plan to sell their homes in three to five years but also those who plan to own their home longer and believe interest rates will remain relatively low.
He added that annual and lifetime caps will protect today's borrowers who chose adjustable loans from the sudden high increases that occurred early in the 1980s.
"There is a case for the adjustable, but unless a person is financially sophisticated they are not going to figure it out," Gooden said.
Despite the potential rewards with adjustables, most new mortgages today bear fixed rates.
"ARMs are only doing about 5 percent of the market right now," said Paul S. Havemann, a vice president at HSH Associates in Butler, N.J., which surveys 2,000 lenders nationwide each week. "It happens when fixed-rates get low. Right now, you can pick up 7.5 percent on a fixed. It wasn't too long ago that that was a good adjustable figure."
Last month, Bob Greenwald, a 39-year-old stockbroker in Newburgh, N.Y., contemplated taking an 4.25 percent adjustable-rate mortgage when he purchased his first home, a split-level, three-bedroom raised ranch for $147,500. The mortgage even had a conversion feature that, early in the life of the loan, would allow it to be converted to a fixed rate for a $250 fee. The mortgage also had an annual 2 percent interest rate cap and a 6 percent lifetime cap.
Even so, he went with a 15-year fixed-rate: 7.875 percent with 1.75 points; a point equals one percentage point of the total amount of the mortgage and is paid at the closing.
"I just didn't want to assume the risk of an adjustable -- I didn't want to gamble," said Mr. Greenwald, who made a $47,500 down payment and will be making mortgage payments of $1,200 a month.
"I thought about all the things I tell my clients," he added. "That there doesn't seem to be any inflation either this year or next, but that there are structural economic problems -- like an overpriced real estate market, the problems in commercial real state, the aging of the baby boomers -- that are obviously a concern. So, a fixed seemed like the conservative way to approach it."
To be sure, these are conservative times. Most prospective homebuyers watched or participated in the boom and bust of the 1980s real estate market and they remain cautious, even when they are offered mortgage interest rates at levels not seen since July 1973.
Even those who have benefited from adjustables are unsure if they would take one out today. Billy Stephen of Brooklyn, for example, took an adjustable loan seven years ago when he bought a $120,000 weekend house in Woodstock, N.Y. Since then, the rate on the loan has dropped from 11.75 percent to 7.65 percent, and his monthly payments have fallen from $1,275 to $1,004.
Nevertheless, Mr. Stephen, who is a real estate broker, said "I'd take out a fixed today like everybody else -- the rates can't go any lower."
Rates, for the most part, began falling in the mid-'80s, with zigs and zags along the way since then. They peaked in 1984 at 14.76 percent for fixed-rate loans and 12.09 percent for adjustables and now stand at about half those levels.
As of Thursday, the national averages, according to HSH Associates were 8.17 percent for a 30-year fixed-rate loan and 5.26 percent for a one-year adjustable. Moreover, HSH also found that 545 banks and brokers were offering fixed-rate mortgages at 8 percent or less and 475 were offering adjustables at 5 percent or lower.
Average rates as reported by the Mortgage Bankers Association on Thursday were even lower: 8 percent for a 30-year fixed rate and 5 percent for a one-year adjustable. The association tracks the rates at 20 large mortgage banking firms.