Thursday, December 23, 2010

MORTGAGE & FINANCE: With tax deal, window to lock in low mortgage rates may be closing

NEW YORK — Homeowners who delayed locking in super-low mortgage rates — think close to 4 percent for a 30-year fixed — may have waited too long.

Rates are creeping back up, in part because of the tax cut in Washington. Now those in the market to buy or refinance have to decide whether to take what’s available or wait — and run the risk that rates will keep rising.

The Mortgage Bankers Association said this week that overall applications for loans declined 2.3 percent from last week. Refinance applications slipped 0.7 percent, while purchase applications dropped 5 percent.

Rates on both 15- and 30-year mortgages increased to the highest levels in at least six months. The average rate for a 30-year fixed loan rose to 4.84 from 4.66 percent, the group’s survey showed.

Rates on 15-year fixed-rate mortgages increased to 4.21 percent from 3.98 percent, on average.

“People thought for a while that rates would fall below 4 percent, and they hedged on that,’’ said a New York mortgage broker and banker, Andrew Toolin, who had just been on the phone with a client who is paying 5.875 percent on his mortgage.

Rates are rising because they tend to follow the trends set by the 10-year Treasury bond and other government bonds. Investors are selling those bonds, causing their interest rates to rise, because of the tax cut approved by the Senate.

The measure has been sent to the House for action.

Some economists think the deal, which would put money in Americans’ pockets right away, will help the economy heal faster. A stronger economy would make stocks more attractive than bonds, which are a safer investment in rocky economic times.

Even though they are rising, mortgage rates remain at extraordinarily low levels, by historical

The opportunity to refinance a home loan at a fixed rate of less than 5 percent is still a pretty good deal, and even better for those who are trapped in an adjustable-rate mortgage.

Still, for those homeowners who already have low rates or are thinking about a second refinancing, a quarter-point to half-point change over the month could be crucial. Many have already refinanced into lower rates in the last year or so at 5 percent or below. They would need rates to be at least 1 percentage point lower to make a refinance financially worthwhile.

Lisa Herman of Philadelphia said she learned from her mistake. She is trying to refinance her row house in Philly’s Center City, while also buying a cottage near her family in Traverse City, Mich.

Four weeks ago, she could have gotten 4.25 percent on her refinancing and 4.875 on her purchase. She waited, betting rates would go back down or at least stay flat. But they edged up. A week later, she folded and locked in 4.378 percent and 5.125 percent. The price for her hesitation: about $50 a month.

By Janna Herron Associated Press / December 16, 2010

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