Originally created 02/22/98

Homeowners making use of low rates



When Bart Chandler entered the mortgage business 15 years ago, interest rates were in the double digits. Now, they are now at one of the lowest levels he's ever seen.

This year has been a strong one for mortgage refinancing -- it may be the second strongest year on record for mortgage refinancing, some economic analysts predict. Low rates, bright economic forecasts and the large number of lenders are sending homeowners to mortgage brokers and bankers to refinance their home loans.

"There are a lot of people doing it," says Mr. Chandler, vice president of Prime Lending, a mortgage banking company. "It's an attractive deal. A lot of people are taking advantage of it."

At Prime Lending on Friday, 30-year, fixed-rate conventional mortgages were 6.875 percent at zero points, Mr. Chandler said.

This year may turn out to be similar to 1993, the strongest year on record for mortgage refinancing, experts say. Homeowners are cashing in on low interest rates.

"We're definitely doing a lot of refinancing," says Frank Lee, branch manager of Norwest Mortgage Inc. in Martinez. "We're doing a lot of customers we did last year."

Thursday, Federal Home Mortgage Corp. reported that the 30-year fixed-rate conventional mortgage averaged 6.99 percent, with fees and points averaging 1.2. A year ago, the 30-year fixed-rate mortgage averaged 7.56 percent. The rate for the 1-year Treasury-indexed adjustable-rate mortgage averaged 5.59 percent last week, with fees and points averaging 1.2. A year ago, the 1-year adjustable-rate mortgage averaged 5.45 percent.

Average rates in the eight Southeastern states were even lower: The 30-year fixed-rate mortgage was 6.95 percent, with fees and points averaging 1.3; the 1-year adjustable-rate mortgage was 5.57 percent with fees and points averaging 1.3.

Many homeowners are drawn to the lower rates, said Robert Van Order, chief economist for Freddie Mac, a publicly traded, government-chartered mortgage market company that functions like a commercial corporation.

"It's on the order of half or more of the market," Mr. Van Order said of the number of homeowners refinancing mortgages.

There was a refinancing boom in 1993 because many homeowners were able to lower their rates from 10 percent to 6 percent or 7 percent, Mr. Van Order said. Homeowners this year are likely to go from loans with interest rates at 8 percent or 9 percent to 7 percent or less.

Interest rates were low in 1993, Mr. Van Order said, because the economy slowed and inflation was low. After that, the economy recovered and rates went up. Although the economy is strong now, interest rates are low, the economist said, because there is low inflation.

Competition, he says, makes it easy to shop around. Homeowners considering refinancing can call lenders and get rate quotes. Many lenders are folding their costs into the rate, so they are easy to compare.

But which kind of rate is better: a fixed- or adjustable-rate mortgage?

That depends, lenders say. On average, adjustable rates are less initially, but there is always the possibility that they will unexpectedly shoot up. Fixed rates may be higher overall, but there is no risk that they will rise.

Some mortgage bankers say that many homeowners are converting their adjustable-rate mortgages into fixed-rate mortgages. They may not be saving money, but are locking their loans into low rates to protect themselves from any unforeseen rises in the adjustable rate.

Perhaps the most important thing to consider, experts say, is how long you plan to live in the house before selling it.

If you are planning to sell after three years or less, the lower adjustable-rate mortgage might be more appealing. But if you plan to reside in the home for a long time, the safer, fixed rate might be better.