Mortgage rates in area fall below 7% Average for 30 years, 6.92%, is lowest since Oct. 1993

Spurs refinancing frenzy

'Two-point rule' discarded due to low closing costs today

Real estate

January 16, 1998|By Robert Nusgart | Robert Nusgart,SUN STAFF

Rates for a 30-year fixed-rate home mortgage among Baltimore-area lenders have dipped below 7 percent for the first time in more than four years, and the drop has apparently started another refinancing frenzy.

According to HSH Associates, a New Jersey firm that tracks and analyzes mortgage rates, the local average 30-year mortgage rate has fallen to 6.92 percent, the lowest since rates hit 6.81 percent on Oct. 15, 1993, during the last refinancing boom.

Nationally, the Freddie Mac 30-year mortgage rate survey dropped to 6.89, its lowest mark since Oct. 29, 1993.

For Neil Sweren, president of American Home Loan Inc. in Pikesville, the wave of phone calls began Monday.

"I would say our volume on a percentage basis has quadrupled. The phone just rings all day," he said. "It's like it was a couple of years ago when people called and you would say, 'Here's what I can do, when do you want to get together?' and they say, 'How about now?' I haven't seen that in years."

Sweren said even homeowners who have an 8 percent mortgage can get a lower rate and save money.

"People take a look at what they can save and see if it's worthwhile. For some people saving $50 and $60 a month, it's worthwhile," Sweren said.

Sweren said a homeowner who has a $150,000 mortgage at 8.25 percent pays $1,126 in principal and interest a month. He said refinancing to 7.25 percent would drop the principal and interest payment to 1,023, a savings of $103 a month.

In past years, many homeowners would use the "two-point rule" -- meaning that there should be a 2 percent spread between the old rate and new rate -- to determine if they should refinance.

That strategy has been tossed since many refinances today can carry minimum closing costs.

"You can pick up that two-point rule and throw it out the window," said Keith Gumbinger, vice president of HSH Associates.

"It doesn't make sense anymore to limit yourself to that. If you'regoing to stand around waiting for 2 percent to happen, you're going to throw away a great opportunity."

However, he added that borrowers should consider how much they will be paying in closing costs and compare it to how long it will take them to recover that amount against their monthly savings.

That kind of activity was apparent not only in Baltimore but in other areas as well.

Joanne Stevens, a spokeswoman for NationsBank, said that the company received more than 64,000 phone inquiries Monday on its national toll-free mortgage line. She said the company usually gets about 2,500 calls a day.

Gumbinger said his company's web site has drawn more than 2.5 million hits in the last six days, compared to an average of 700,000 per week.

The Mortgage Brokers Bankers Association of America reported yesterday that 60 percent of all mortgage originations last week nationally were for refinancing. According to the association, refinances usually account for 20 percent of all originations.

Rates have been heading down for the past several months due to low inflation. But the pace quickened earlier this month when troubles in the Asian markets sent money into U.S. Treasury securities, forcing rates up and yields as well as mortgage rates down.

Robert Van Order, chief economist for Freddie Mac, didn't want to speculate on how long the troubles in the Asian market might affect rates, but did believe that inflation would remain low. And he's guessing that mortgage rates should continue to favor the consumer.

"I have told people that for the next six months, rates will be in the 6.5 to 7.5 percent range. I think that is a fair guess. I think there is very little chance of mortgage rates going up."

Pub Date: 1/16/98

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