RATES FLIRT WITH 6 PERCENT:Results of Bankrate.com’s Sept. 25 national survey and the effect on monthly payments for a $150,000 loan:
This week’s rate:
Change from last week:
Change from last week:
Another week, another record low
By Holden Lewis • Bankrate.com
Mortgage rates keep dropping lower and lower, fueling an already blazing refinance fire.
The benchmark 30-year fixed-rate mortgage fell 5 basis points to 6.03 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week’s survey had an average total of 0.46 discount and origination points.
Mortgage rates haven’t been this low since May 1966, when the average FHA rate was an even 6 percent.
Mortgage rates move up and down with the yields on 10-year Treasury notes, and Treasuries have drifted down, down, down since July. Economists blame weaker-than-expected earnings reports, continued layoffs, anemic retail sales, and the prospect of war with Iraq. Those factors drive investors to buy ultra-safe Treasury notes. The demand raises the price of Treasuries, and when their prices go up, yields go down. Mortgage rates follow.
As recently as April, the average rate on a 30-year mortgage was more than 7 percent.
“I’m telling you, my phone is ringing off the hook,” says Jim Bradley, president of American Residential Lending Corp. in Atlanta. “I can’t keep up. There’s people who refinanced six months ago who now want to redo it.”
Bradley has a customer who got a 15-year mortgage at 6.125 percent a few months ago and now wants to refinance for 15 years at 5.25 percent. The difference is just seven-eighths of a percentage point, but it’s a “pretty good-size loan” and refinancing makes sense for the client. “She would save $150 a month. She would break even in a year and a half,” Bradley says.
His clients aren’t the only people who are refinancing for the second or third time in a short period. “Many, many people refinanced several times over the past year or so,” says Doug Bui, president of East West Mortgage in the Virginia suburbs of Washington, D.C. “And we have many situations in which the client just walked out of the settlement table and wants to refinance again. It’s crazy.”
These low rates put money not only in the pockets of refinancing homeowners but also in the pockets of mortgage brokers and mortgage bankers, title companies, appraisers and other businesses that offer support services for mortgages. Everyone is working overtime, mindful that there will be a spike in refinancings as rates drop below 6 percent, another spike when rates begin to rise, and then a refinancing bust when rates rise past 7 percent, as they inevitably will do someday.
Bui counsels customers to lock rates for at least 30 days (if they choose to lock) and preferably for 45 days in case of delays. He says most of the delays come from loan underwriters who are absolutely snowed under with a blizzard of paperwork. “They don’t have enough time to underwrite loans,” Bui says. “Even though the industry is automated somewhat, there’s still a lot of human involvement in the process.”
Bradley and Bui say that potential borrowers are rate-shopping a lot, pitting broker against broker and lender against lender. They say borrowers should beware the pitfalls of taking rate-shopping too far.
“Don’t automatically go for the lowest rate,” Bui counsels. Now, that might seem like crazy advice, but Bui says it’s sound advice right now, when the mortgage industry is this busy. The lender with the lowest rate might not be able to process the loan paperwork on time, leaving the borrower without a promissory note to sign on closing day.
“Pick a fair price and look for a reputable company with enough resources to handle the current volume and take care of your business, your needs,” Bui says. “Don’t shop for rates alone — shop for service.”
Another piece of advice: “Don’t pay points, because the rate might drop again,” Bui says. By not paying discount points, you’ll be in a better position to refinance again if rates drop in the next few months.