Ultra-low home mortgage rates probably at an end, experts say


If you were looking to get in on what were the lowest mortgage rates this nation has seen in decades, you've probably missed your chance: Experts say home-loan rates, already on the rise, will continue to edge higher for the rest of the year.

Experts say the cost of a 30-year fixed-rate mortgage - currently 5.875 percent - could rise as high as 6.25 percent by the end of this year. That mortgage hit a four-decade low of 5.5 percent less than two weeks ago, according to statistics provided by American Home Mortgage of Columbia.

That trough won't likely be reached again, experts say.

"Our expectation is that mortgage rates will remain relatively low between now and the end of 2003," said Frank K. Nothaft, chief economist for Freddie Mac, the congressionally chartered private company that every month buys billions of dollars in home loans, an activity that provides liquidity to the mortgage markets.

"That's not to say that mortgage interest rates won't increase. We're at such a low level right now, that with a pickup in economic growth ... they could easily be at 6 1/4 percent" by late this year or early next year.

The Mortgage Bankers Association of America's latest projection has the 30-year fixed-rate mortgage climbing to 6.5 percent by the end of this year.

Although much uncertainty continues to surround the events unfolding in the Persian Gulf, the fact that troops of the United States and its allies are massed and ready to move has apparently provided enough clarity to draw investors out of bonds and back into stocks. By selling bonds, investors have helped nudge up interest rates, including mortgage rates.

With the menu of mortgage products that have been developed in recent years, mortgage rates have emerged as a key to the country's economic vitality. Lower rates not only allow younger consumers to buy their first home, but they enable growing families or empty-nesters to trade up to larger and more expensive homes, and help retirees to design and build their dream homes.

Home buying has a huge spin-off impact, economists say, because homeowners regularly shell out huge sums for home furnishings or hire outside contractors to update older homes or build additions.

In spite of the recent rate increase, interest rates remain extremely low from a historical standpoint, said experts such as Neil L. Swerin, president of Allymac Mortgage Services Inc., a mortgage-broker in Owings Mills. Rates remain well below their level immediately before the Sept. 11, 2001, terrorist attacks, which many economists say helped further destabilized a wobbling economy.

The week before the attacks, a 30-year fixed mortgage with no points averaged 6.89 percent, according to American Home Mortgage.

Within a month, the rate on that 30-year mortgage had fallen nearly half a percentage point, to 6.45 percent. The 5.5 percent level of March 6 is the lowest in more than 40 years, which is as far back as Freddie Mac figures reach, that company said.

The decline created significant savings opportunities for consumers, according to American Home statistics.

With a 30-year fixed rate, someone borrowing $200,000 who locked in at 6.89 percent on Sept. 6, 2001, would be making a principal and interest payment of $1,315 a month. By contrast, a mortgage holder who locked in at the 5.5 percent low point would be paying $1,135 a month. That's a savings of $2,160 a year.

Over the term of the mortgage, the holder of the costlier mortgage would pay $273,710 in interest, nearly $65,000 more than the one who locked in at the bottom.

Over the past decade and a half, steeply falling mortgage rates have created the same frenzy as a rampant bull market for stocks. Bull-market swings induce an ever-widening circle of consumers to pile into stocks, and rapidly declining home-borrowing rates draw in hordes of homeowners looking to refinance their suddenly expensive mortgages, experts say.

And both are looking for bargains. Just as a stock-market investor wants to get that share at its lowest quoted price, a mortgage-seeker feels the need to lock in at the lowest fraction of a point, said Swerin, the Allymac Mortgage Services president.

In that quest to get in at the bottom, both bargain-hunters often miss out, he said.

Too often, as rates increase, a prospective borrower refuses to lock-in on the current rate, and vows to wait for a decline that never materializes. At best, that borrower ends up with a bigger mortgage.

At worst, there are times when the higher rate disqualifies the consumer's mortgage application by making the home too expensive to purchase.

"That can be a real mistake," Swerin said.

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