Low rates make now the time to buy a home


Go for it.

That's the best advice to anyone contemplating the purchase of a home or the refinancing of a mortgage in 1995.

Thirty-year, fixed-rate mortgage rates, averaging 7.5 percent or less, are at their lowest level since October 1993. Though there's the chance of further slippage, it certainly won't be much more, and you're probably best off going full-speed ahead. At least, get the process rolling.

Home sales will likely be down about 6 percent this year from last year's strong results, and economic vagaries make it a buyer's market despite low mortgage rates. At the same time, mortgage refinancing volume has lately risen more than 25 percent at many of the nation's financial institutions.

Play the interest rate forecasting game if you must, but keep in mind that even most economists aren't all that good at it.

"The current 30-year mortgage is at a very, very low rate historically, and it would be foolhardy to think you can accurately predict what the floor will be on how low interest rates can go," acknowledged David Lereah, chief economist for the Mortgage Bankers Association in Washington.

"If you are seriously contemplating purchasing a home, this would be the time to lock in."

Despite recent comments by Federal Reserve Chairman Alan Greenspan pooh-poohing the likelihood of a rate cut, Mr. Lereah still believes mortgage rates will slide to 7.25 percent or less because of a weakening economy.

A look at the history of rates for 30-year, fixed-rate mortgages is worthwhile. Rates got as low as 7.4 percent in 1972, but hit 18.45 in 1981. In 1993 they got down to 6.83 percent, but rose to 9.2 percent the next year. When contemplating this year's rates, remember that they don't stay low forever and do bounce around in cycles.

I've seen a lot of people lose their appetites and sleep over a mere quarter of a percent in mortgage rate and eventually wind )) up paying more, rather than less, for their loan. Timing rates to mortgages can drive you crazy.

If we were to fall into a recession, David Berson, chief economist with Fannie Mae in Washington, believes rates could get down to 7 percent. Of course, only buy a home if you really need one and can afford it.

There are still bargains, and rates are attractive, yet demand still isn't strong.

"The housing market is hitting the skids rather quickly and we're not seeing the pickup in housing that any forecaster would've anticipated with this type of decline in interest rates," said Thomas Neary, senior vice president with NationsBank Mortgage Corp. in Charlotte, N.C.

There's been a "burnout" stemming from the 1992 and 1993 drops in interest rates that had taken care of pent-up housing demand, he said. The result has been a decline this year.

There's still hope within the industry that this will improve.

"We're expecting to end this year equal to a very good 1994, despite the fact our first six months have been softer, for we

believe we can make it up in our last six months," said Joyce Burke, president of Coldwell Banker in Chicago.

"Right now buyers have a narrow window of opportunity in which the prices asked by the sellers of homes are very realistic and the interest rates are at a low."

Meanwhile, the refinancing "mini-boom" of 1995 grows.

Refinancing is generally considered worthwhile if there's a difference of at least two percentage points between the interest you're paying now and the interest you could get with a new loan.

However, the variety of refinancing configurations available these days means you must run the numbers carefully.

Remember closing costs average about 2.5 percent of the loan amount.

You'll have to pay for items such as home reappraisal, legal fees, document preparation and recording. If you go to a new lender, you must pay for a new credit report, new title search and title insurance.

Should you plan to spend a long time in your current home, refinancing becomes more attractive, since fees will be spread over a longer time period. Savings from the rate change will be longer-lasting.

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