By Noelle Knox
USA Today
If you’re thinking of buying a home, here’s a sum that will get your attention: $13,763.
That’s what you’d save in interest over the life of the loan if you bought a $221,300 house (the U.S. median price) with an average 30-year fixed-rate loan today, instead of paying the average rate for this year.
Mortgage rates have fallen for 10 of the past 13 weeks and are now averaging 6.11%, the lowest since January, Freddie Mac said Thursday. Six months ago, the average rate on a 30-year fixed loan was 6.67%. The average for this year is 6.44%.
The unexpected and steady decline in rates could cushion falling home sales by making mortgage payments more affordable. Lower rates also will help millions of homeowners with adjustable-rate mortgages that are resetting to higher rates — and that, in turn, could stem rising foreclosures.
At the same time, more homeowners might now decide to refinance their homes and take out some spending money, which would give the economy a little juice.
“These low rates really have come as a surprise, considering previous forecasts,” says Greg McBride, a senior analyst at Bankrate.com. “And I don’t see these rates going up by a significant measure anytime soon.”
Already, mortgage brokers are seeing a jump in the number of homeowners who are refinancing ARMs or consolidating mortgages and home-equity lines into one fixed-rate loan. About $1.2 trillion in ARM loans will reset to higher rates next year.
When Paul and Teresa Merrill bought their home in Pleasanton, Calif., three years ago, they could afford it only with an adjustable-rate loan that let them pay only the interest, or even less, each month.
Their loan began with a teaser rate of 1.95%. A year later, it jumped to 5.5%. Now, it’s 8.5%. But this week, the Merrills locked in a 5.75% fixed-rate loan, which will save them $270 a month.
“That’s a nice little windfall,” Paul Merrill says. “But for me, the best part is the satisfaction of knowing that 12 years from now my monthly payment will be the same it is now and not having to lose sleep about where mortgage rates are going to go.”
Loan applications rose last week to the highest point since April 2004, the Mortgage Bankers Association said. And applications to refinance loans rose nearly 14%, on a seasonally adjusted basis.
Many homeowners are also refinancing their homes to consolidate other debts, says Marc Savitt of The Mortgage Center, a mortgage brokerage firm.
“Lower rates should improve the affordability issue, which has really become a challenge to a lot of American homeowners,” says LaVaughn Henry, economist for The PMI Group, a mortgage insurance company.
