A maze of mortgages

Rates: They are as low as they have been in a long time, and refinancing has never been such fun.

November 04, 2001|By Susan Ferrechio | Susan Ferrechio,SPECIAL TO THE SUN

You've seen or heard the advertisements: "No points. No closing costs. And the guaranteed lowest interest rate."

You've been solicited over the phone: "Even if you have no equity, you can cut your payment."

Your neighbor boasts about how the guy he used to refinance was able to knock a couple of hundred dollars off the monthly mortgage payment.

And you're just sitting there, wondering what to do as mortgage rates drift to some of their lowest levels since the Nixon administration.

Since the Sept. 11 terrorist attacks, the economy has struggled to recapture momentum. Layoffs are more commonplace. Consumer confidence last week reached its lowest point in the past 7 1/2 years.

But if there is one financial area that has been stimulated from all this uncertainty, it's the mortgage market, which has benefited from interest rate cuts by the Federal Reserve Board and a flight to safety by investors to the bond markets that influence mortgages.

According to Freddie Mac, the federally chartered company that supplies funds to lenders by purchasing mortgages, the average 30-year, fixed-rate mortgage for September was 6.82 percent, down from 7.91 percent for the same month last year.

Since Freddie Mac began surveying lenders in 1971, only two other Septembers had similar rates in the 6 percent range - 1998 and 1993, both of which were huge years for refinancing.

Through October, Freddie Mac reported that its average weekly rate had dipped as low as 6.58 percent and the rate for a one-year adjustable-rate mortgage was at 5.25 percent, the lowest since Feb. 16, 1994, when it averaged 5.19 percent.

As of Friday, the Freddie Mac weekly survey had the 30-year, fixed-rate average at 6.56, the lowest since it reached 6.49 percent on Oct. 9, 1998, the lowest recorded in the 30-year history of Freddie Mac's survey.

Similarly, the Mortgage Bankers Association of America weekly survey had the average 30-year fixed rate last week at 6.47 percent, the second-lowest since the association began tracking interest rates in January 1990.

The record low of 6.36 percent was set the week that ended Oct. 2, 1998.

And it is possible that rates could go lower.

The U.S. government's decision last week to suspend the sale of 30-year Treasury bonds may help drive mortgages lower as demand shifts to 10-year notes, which are used as a benchmark for setting home loan rates.

Without the option to purchase 30-year notes, more demand will be placed on the 10-year Treasury, meaning that as the bond price rises, the yield will fall and consequently mortgages would follow suit.

Mortgage professionals, therefore, believe that a fixed-rate mortgage at 6 percent may be possible in the future.

So how does a consumer take advantage of what are considered to be the most attractive mortgages in a generation?

With hundreds of area mortgage bankers and brokers offering a dizzying array of deals, how can one sift through all the possibilities to find the best mortgage rate or determine whether it would really be worth it to refinance or take out a second mortgage?

"What we are finding is it is very competitive out there and people are offering a lot of different rates and points," said Connie Dube, branch manager for First Home Mortgage in Lutherville.

"Customers have to ask all the questions and be knowledgeable, because sometimes it doesn't pay to refinance," Dube added.

Many consumers, however, are finding it does pay to refinance or buy a home, and they are flocking to take advantage of the rates. According to the Mortgage Bankers Association of America, mortgage originations are on pace to reach $1.84 trillion this year, a record amount, up from $1.02 trillion last year.

"If people have the time and inclination to go through this process, now is looking as good as it's going to get," said Amy Crews Cutts, an economist for Freddie Mac.

Getting started

The first rule of thumb to understand is that mortgage rates change frequently, typically by 10 a.m. each day. But on those days when the stock and bond markets go into frenzies, it's possible for rates to change on the hour. If you call a lender or broker Monday morning for a rate quote, then apply for a mortgage the next day, the rate will very likely be different.

So how can you know you are getting the best rate?

You won't, say lenders and analysts.

"This is somewhat of a moving target," said Al Ingraham, regional vice president of First Horizon Home Loan MNC Division in Baltimore and president of the Greater Baltimore Board of Realtors.

"You are taking a snapshot in time when you lock in to a rate. People will lock in with us; we take the time with them and do appraisals and then they see someone with a cheaper rate. We have no real way to stop them."

What are the best strategies to follow when starting to shop for a mortgage? Many industry analysts say that beyond the rate, look for the mortgage scenario that best fits your personal situation.

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