Homeowners refinance to fixed-rate mortgages

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NEW YORK - Lawrence Jones knew he was taking a chance on interest rates when he agreed to an adjustable-rate mortgage in 2002.

Mr. Jones, who works with a heating and air conditioning company and owns a three-bedroom house in Monroe, N.C., said that the first year, there was no change in his interest rate. The rate went up a percentage point, however, in each of the next two years.

The rate was going to go up another percentage point last fall when Mr. Jones and his wife, Delesia, decided to refinance and eliminate the increases with a 30-year, fixed-rate mortgage.

"I wanted to stay under 7 percent," Mr. Jones said. "I'm a person who likes certainty, and I'm getting that my new mortgage."

In recent months, thousands of homeowners have grown uncomfortable with the rising rates on their adjustable mortgages and have been switching to the fixed-rate variety, mortgage experts say. The advantage is that they lock in an interest rate - and a monthly payment - so that budgeting becomes more predictable.

They can thank the Federal Reserve, which through most of 2006 pushed up short-term interest rates, boosting the costs of adjustable-rate mortgages and other short-term loans, while the rates on long-term debt remained flat.

Jim Svinth, the chief economist at LendingTree, an online mortgage marketplace based in Charlotte, N.C., said he's been seeing a surge in refinancing of adjustable-rate mortgages for the past six to eight weeks. He expects the trend to continue well into the year.

Among the reasons people are switching is that the difference in the rate on adjustable mortgages and on fixed mortgages has narrowed, Mr. Svinth said. For example, the rate on a mortgage that can adjust annually was 5.84 percent in recent weeks, compared with about 6.22 percent on a fixed-rate mortgage.

Many borrowers are opting to pay a little more for the fixed-rate mortgage to avoid the risk of a reset on an adjustable mortgage in the future, Mr. Svinth said.

"We're seeing a lot of people who are saying they'd rather pay half a percent in rate and have the security of a fixed loan, particularly given that the absolute level of rates is down," he said.

About half of all mortgage applications have been for refinancing, and applications in December were at the highest level in 14 months, according to a survey by Mortgage Bankers Association, an industry group based in Washington, D.C.





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