Monday, December 15, 2008

HOME-LOAN REFINANCE NOW MAY PUT CASH IN YOUR POCKET FOR THE HOLIDAYS

With long-term mortgage rates falling into the mid 5-percent range, and home resales moving at a snail’s pace, the holidays may be a great time to lock in an affordable home-loan and lower your monthly payments, experts advise.

With banks and mortgage companies quoting 5.5 percent or less on benchmark 30-year fixed rate mortgages, now may be the best time in more than five years to get a deal on a refinanced home loan, assuming you have a job and good credit.

Experts say if you can’t sell your home now at a profit, it may be a good idea to refinance and cut your monthly payments. Today, experts say a homeowner should refinance if he or she can save $100 or more per month and break even within a year on closing costs, which can run up to $2,000 on a typical home.

In early December, lenders were quoting an average of 5.53 percent on benchmark 30-year fixed-rate home loans, according to Freddie Mac’s Primary Mortgage Market Survey. A week earlier the average rate was 5.97 percent. Last year at this time, the 30-year loans fixed averaged 5.96 percent. Thirty-year mortgages have not been lower since January 24, 2008, when rates fell to 5.48 percent.

With the recent declines, average 30-year home-loan rates are 0.32 of 1 percentage point above the 40-year historical rock-bottom of the market—5.21 percent in June of 2003, experts say

“After the Federal Reserve actions to increase liquidity in the mortgage market, interest rates for fixed-rate mortgages took a dive,” said Frank Nothaft, Freddie Mac vice president and chief economist. The decline in early December was the largest since the week of November 27, 2008, Nothaft said. Thirty-year fixed-loan rates are now almost a full percentage point lower since the end October.

“The recent plunge in rates contributed to the nearly 150 percent jump in conventional mortgage applications over the Thanksgiving week, led by almost a 300 percent surge in refinances, according to the Mortgage Bankers Association.

Roughly three out of four mortgage applications were for refinance transactions, up from around half during the prior week.”

Rates on 15-year fixed loans also were sharply lower in early December. Freddie Mac said 15-year loans averaged 5.33 percent, down from 5.74 percent a week earlier. A year ago at this time, the 15-year fixed loan averaged 5.65 percent.

Fifteen-year loans have not been lower since March 20, 2008, when they averaged 5.27 percent.

Although rates on adjustable mortgages are lower, borrowers generally are shunning them. According to Freddie Mac, borrowers who originally had a 1-year ARM selected a fixed-loan 94 percent of the time when refinancing in the third quarter of 2008. One-year Treasury-indexed ARMs averaged 5.02 percent in early December, down from 5.18 percent a week earlier. A year ago, the 1-year ARM averaged 5.46 percent.

To fully appreciate how affordable home-loan rates really are, you need to know something about mortgageland’s history. Few of today’s novice borrowers remember that only nine years ago in August of 1999, lenders were quoting 8.15 percent on a 30-year fixed mortgage.

Housing experts say home buyers need only to look back at what banks and mortgage lenders where charging during the last great recession in the early 1980s to understand what a great deal today’s rates are.

According to Freddie Mac, benchmark 30-year mortgage rates peaked at a whopping 18.45 percent in October of 1981. Rates fell below 10 percent in April of 1986 during the recovery, and then bounced in the 9-percent to 10-percent range during the balance of the 1980s.

Archives of the now-defunct Federal Housing Finance Board show long-term mortgage rates were a very affordable 5.81 percent to 5.94 percent between 1963 and 1965. In 1966 and 1967, borrowers paid an average of 6.3 percent to 6.4 percent. Rates last dipped below 6.5 percent in January of 1968, when the national average hit 6.41 percent. Between 1971 and 1977, the now-defunct Illinois usury law held rates in the 7.6-percent to 9-percent range.

Through a series of dips and up-ticks, rates have averaged 5.21 percent to 8.4 percent over the past 12 years.