A silver lining for mortgage seekers

30-year loans at 6.34%, lowest rate in 31 years

`unparalleled opportunity'

Linked to stocks' decline

July 26, 2002|By Robert Nusgart | Robert Nusgart,SUN STAFF

Your 401(k) may have crashed. Your stock portfolio may still be in a nose dive. But if you're looking for a mortgage today - as one analyst said - "you've got a giant smile on your face."

Out of the gloom of a plummeting stock market, Freddie Mac reported that the average interest rate for a 30-year mortgage dropped to 6.34 percent yesterday, the lowest in the 31 years it has been issuing its weekly survey.

"In terms of mortgage rates, the last time they were this good was when Jimi Hendrix was coming out with his first album," said Robert Van Order, chief international economist for the federally chartered company that supplies lenders with funds by purchasing mortgages.

The drop takes the rates below the low points in the aftermath of the terrorist attacks of Sept. 11. A year ago, the Freddie Mac 30-year average stood at 7.03 percent. That means the monthly principal and interest on a $200,000 mortgage has dropped from $1,335 to $1,243 and that the interest savings over the life of the loan total $32,930.

Freddie Mac also reported that the average rate for a 15-year mortgage sank to 5.76 percent, the lowest since it began tracking such mortgages in August 1991. The average for the one-year adjustable-rate mortgage dropped to 4.31 percent, the lowest since it hit 4.25 percent Feb. 25, 1994.

In Baltimore, the 30-year average dropped to 6.42 percent, also the lowest recorded for the area, according to HSH Associates, a New Jersey firm that tracks and analyzes mortgages.

"What we are left with is fantastic mortgage rates," said Keith Gumbinger, a vice president with HSH Associates.

"It is an unparalleled opportunity for the consumer to refinance and consolidate debt," said Gene Lugat of AccuBanc Mortgage and president of the Maryland Mortgage Bankers Association.

The fall in mortgage rates seems to be a direct result of the downward spiral of the stock market.

"As people have tried to get out of stocks, they have tried to get into bonds," said Van Order. And as bond prices go up, yields go down. The yield on the 10-year Treasury note - which mortgages typically follow - has descended from 4.78 percent July 1, when the Dow Industrials were at 9,109, to 4.38 percent yesterday, when the Dow closed at 8,186.

"Without question, we couldn't have foreseen this a week or two weeks ago," said Alan R. Ingraham, regional vice president for First Horizon Home Loans in Lutherville and president of the Greater Baltimore Board of Realtors.

"I think in the short term we might see another little rally here," said Bill Heffernan, president of First Home Mortgage. "And I've only thought that in the last three or five days. We're very optimistic."

In fact, getting a 30-year mortgage closer to 6 percent is "very doable" Gumbinger said. "There still appears to be some downward pressure. The prospects for a higher or significantly higher rates at the moment is pretty unlikely right now."

Ingraham thinks that if the Dow dips below 7,000, the 30-year rates could go below 6 percent.

Van Order takes a more cautious view.

"In terms of our survey, I don't think it will go below 6 percent," he said. "It's possible, but I don't think it is probable. I think that it is more likely that the trend will be up for the next week or two. There is just a lot of volatility. It's just anybody's guess where they will be over the next couple of weeks."

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