With long-term rates below 4%, mortgage lenders get busy : Loan Modification Key

With long-term rates below 4%, mortgage lenders get busy

With long-term rates below 4%, mortgage lenders get busy

"Even after years of generally low interest rates on 30-year fixed rate mortgages, when the rate dips under 4%, the attention of consumers perks up.

That's been the case this October, as rates hit their lows for the year.

Brian Wickert, president of Accunet Mortgage in Butler, said his company had its strongest week by far for new applications during the week of Oct. 13 — most of them for refinancing.

"We have to look back to April of 2013, when mortgage rates were under 3.5%, to find a week with similar application volume," Wickert said.

Last week, mortgage buyer Freddie Mac reported that the average 30-year fixed rate mortgage fell to its low for the year, at 3.92% with 0.5 point. It was the fifth consecutive week of mortgage rate declines. The year started with an average rate of 4.43% with 0.7 point. Points are fees paid by some borrowers to get a lower rate. A point equals 1% of the loan amount.

"I definitely took notice of mortgage rates. I took so much notice that I finished my refinance," economist Brian Jacobsen said.

Jacobsen, who is chief portfolio strategist for the investments group at Wells Fargo Funds Management in Menomonee Falls, said that even though economic stimulus in the U.S. is winding down, the European Central Bank, or ECB, is engaged in monetary stimulus that is driving down interest rates globally.

"Considering the Fed doesn't seem inclined on raising rates anytime soon, and the ECB is in the early stages of its new bond buying program, we could see a couple more years of rates staying rock bottom," Jacobsen said. "I expect rates to eventually migrate higher, but not for a while."

Nervousness about the global economy is sending foreign investors to the safety of U.S. Treasurys. The higher demand pushes up prices for government bonds, causing their yields, which tend to affect mortgage rates, to drop. But rates, which have hovered around historical lows for years now, fluctuate constantly. And ultralow rates can be fleeting.

Analyst's advice

"Rates moved pretty dramatically in the last couple of weeks," said Greg McBride, senior financial analyst with the personal finance firm Bankrate.com. "They fell sharply, but we've also seen a little bit of a rebound since the low point last week. I would advise would-be borrowers and refinancers to act quickly."

The new quarterly North Shore Bank/GMAR Home Affordability Report indicates the combination of low interest rates and low home price inflation — only 1.1% for the year so far — is making the purchase of a home possible for more consumers.

"It's a very attractive environment for homebuyers," said Michael Kellman, a senior vice president at North Shore Bank who oversees mortgage lending.

The Home Affordability Report shows the Milwaukee metro area has homes that could be purchased for monthly payments that rival or beat rent payments. For instance, the median-priced home in West Bend last quarter sold for $148,250, with a monthly payment of $825 — including principal, interest and property taxes. In West Allis, a mid-priced home sold for $117,500, with a monthly payment of $749.

The report uses Metro MLS Inc. data to track the current average monthly payment for homes that were purchased in three price ranges — lower-end, middle-market and upper-end — during the previous quarter in metro area communities where enough recent home sales took place to compute reliable averages. The analysis assumes a 20% down payment, which eliminates the need for mortgage insurance and results in a smaller monthly payment than lesser down payments.

Some professionals said the low interest rates are more likely to generate refinancing than home purchases.

"With the home-buying season slowing down in Wisconsin, the majority of recent applications are for refinances," Wickert said. "I don't think a dip in rates like this causes new people to enter the home-buying mode. It may motivate them to look a little harder, but it's not a game changer."

Financial readiness

McBride said the decision to buy a house depends more on financial readiness of the mortgage borrower than anything else.

"Buying a house is like getting married. You've got to be in it for the long haul and you've got to be prepared for the financial commitment," McBride said. "You don't buy a house because of low mortgage rates any more than you get married because of a sale at the bridal shop."

People have become used to low mortgage rates and "there will be great gnashing of teeth when mortgages rates go up," McBride said. But when they do increase, it should be in the context of an improving economy in which people aren't as nervous about their incomes, he said.

"It's that improving economy that gets people into houses," he said."


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