YOUR MORTGAGE : Home Loan Rates Seen Heading Down Again : Financing: Experts say recent run-up of interest on fixed-rate mortgages should reverse soon. They suggest alternatives.
Despite recent interest-rate run-ups, some of the nation’s top economists and other real estate experts say mortgage rates are going to turn downward again soon.
“I think you’ll see rates go up for another month or two, but they’ll turn back down again--perhaps around March--and keep heading lower for at least a few more months,” said John Tucillo, chief economist of the National Assn. of Realtors.
Added John Hekman, an economist for the Claremont-based Claremont Economics Institute: “The economy is relatively cool and there’s a lot of room left for the Federal Reserve Board to cut interest rates. Interest rates might go up in the short-term, but I think you could see rates decline another half-point or so (from where they are now) over the next few months.”
Rates on 30-year, fixed-rate “conforming” mortgages--home loans for $187,450 or less--started the year at about 9 3/4%, according to the Federal National Mortgage Assn.
But fears that inflation will heat up again have helped to push interest rates higher, with several lenders last week quoting conforming rates of about 10 1/4%.
Also fueling the recent rate increases are fears that big foreign investors will slow their purchases of U.S. debt securities such as Treasury bills, notes and bonds.
To lure these buyers back, some experts say, the federal government will have to offer higher rates on its T-bills and bonds. In turn, that would raise everyone’s borrowing costs--from big U.S. lenders to individual investors.
Although many economists say such fears are unfounded and that mortgage rates will drop again soon, today’s borrowers are in a quandary: What type of mortgage should they get?
“If I were buying a house and thinking about getting a fixed-rate mortgage, I’d probably ask for a 60-day ‘lock-in’ period that would let me get a lower rate if rates go down in the next two months,” said realtor economist Tucillo.
“That might take nerves of steel, because interest rates are going to go up a bit more before they come back down. But if you get a 60-day lock-in, you should be in pretty good shape a couple of months from now.”
As an alternative, Tucillo said, loan shoppers should consider taking out an adjustable-rate mortgage.
“Long-term, I think borrowers who take out an ARM will do very well,” Tucillo said. “I think rates will decline through most of this decade as demand for money on both the corporate and government sides declines.
“Less borrowing would put downward pressure on interest rates, which means people who have ARMs would see their loan rates fall.”
Another option is a convertible loan. This loan starts life out as an adjustable-rate mortgage with a below-market rate, but the borrower has the option of converting it to a fixed-rate loan during a preset time frame--usually between the end of the first year and the start of the sixth.
“You’d get a low introductory rate, and you could convert it to a fixed-rate loan if rates come back down,” said Frank Nothast, an economist with the Federal Home Loan Mortgage Corp. in Washington.
Convertible mortgages can be hard to find. Among the biggest institutions that offer the plans in the West are Beverly Hills-based Great Western Bank, Pasadena-based Countrywide Funding Corp., and Directors’ Mortgage Corp. of Riverside.
Of course, there’s yet another solution: Just stay on the home loan sidelines.
“Nobody can be sure about which way interest rates are going to go,” said Frederick Cannon, chief economist for San Francisco-based Bank of America. “But I don’t forecast any big swings in rates, either up or down.
“The important thing is that borrowers shouldn’t panic. If you’re not sure what to do, you might just want to ‘wait it out’ and see what happens next. The next few months should be very interesting, especially if you’re looking for a home loan.”
THE NATION’S MORTGAGE MARKET Average rates for residential mortgages as of Dec. 1, 1989.
Survey Area Conventional Mortgages Adjustable Mortgages 15-Year 30-Year Composite 1-Year Composite California 9.88% 10.14% 10.01% 8.65% 8.69% Wash., D.C. 9.45 9.70 9.59 8.10 8.46 Florida 9.51 9.77 9.64 8.41 8.40 New York 9.78 10.05 9.93 8.65 8.87 Pennsylvania 9.32 9.66 9.51 8.15 8.26 Texas 9.38 9.69 9.55 8.37 8.56 Nationwide 9.60 9.86 9.75 8.45 8.67
SOURCE: HSH Associates
